Week 1 Intro to TM Flashcards
(27 cards)
What is treasury management?
A management system that aims to optimize a company’s liquidity and mitigate financial, operational, and reputational risk.
It includes a firm’s collections, disbursements, concentration, investment, and funding activities.
What are the main functions of treasury management?
The main functions include:
* Cash forecasting
* Working capital management
* Cash management
* Investment management
* Treasury risk management
* Credit rating agency relations
* Bank relations
* Fund raising
Each function plays a crucial role in managing a company’s financial resources.
What is cash forecasting in treasury management?
The process of predicting cash inflows and outflows to ensure a company has enough liquidity for its operations.
It helps in planning for fund inquiries, investments, and hedging operations.
What is working capital management?
Managing the company’s cash tied up in current assets and liabilities in response to sales levels.
It is essential for maintaining liquidity and operational efficiency.
What are the goals of investment management in treasury?
The goals are:
* Maximum return on investment
* Matching maturity dates of investments with projected cash needs
* Not putting funds at risk
These goals help in optimizing the use of excess funds.
True or False: Treasury risk management involves creating strategies to mitigate risks associated with market interest rates and foreign exchange positions.
True
It is crucial for safeguarding the company against financial uncertainties.
What is the role of credit rating agency relations in treasury?
To manage the company’s credit rating and respond to information requests from credit rating agencies.
A good credit rating can lower borrowing costs and improve financial flexibility.
What is the importance of bank relations in treasury management?
Maintaining a long-term relationship with banks can lead to cooperation during financial difficulties and reductions in bank fees.
It enables better negotiation of terms and services.
What are the four pillars of treasury management?
The four pillars are:
* Developing a global treasury talent centre and organization
* Creating an analytical hub and agent of change
* Developing an ‘agile’ treasury organisation
* Enabling technology through an appropriate treasury management system (TMS)
These pillars help treasury organizations navigate challenges and enhance their impact.
Fill in the blank: One of the key challenges for treasury management today is the potential US Federal Reserve _______.
interest rate hikes
Such hikes can significantly impact borrowing costs and financial strategies.
What is the significance of developing a global treasury talent centre?
It allows for the alignment of treasury policies with organizational objectives and enhances the capabilities of treasury staff.
This development is critical for effective treasury operations.
What does creating an analytical hub in treasury management involve?
Focusing on analytic skills to manage financial risks and enhance decision-making.
It includes predictive analytics to improve financial outcomes.
How does an agile treasury organization respond to changes?
By quickly adapting to internal and external events, such as economic shifts and regulatory changes.
This flexibility is essential for managing risks and ensuring liquidity.
What types of treasury management systems (TMS) do leading treasury departments use?
They use:
* Major third-party TMS vendors
* Enterprise resource planning (ERP) systems such as SAP Treasury
These systems help in centralizing and automating treasury processes.
True or False: Treasury departments do not need to monitor market conditions constantly.
False
Constant monitoring is crucial for identifying financial risks and opportunities.
What are the potential consequences of not managing treasury risks effectively?
Consequences include:
* Increased financial losses
* Poor liquidity management
* Deterioration of credit ratings
Effective risk management is vital for financial stability.
What are the two types of TMS used by leading treasury departments?
- A system through a major third-party TMS vendor
- An enterprise resource planning (ERP) system such as SAP Treasury
What are the benefits of a TMS?
- Centralisation
- Standardisation
- Automation of treasury processes
What is an additional leading practice in treasury management?
The use of SWIFT for secure messaging
How do technology solutions like SWIFT benefit treasury departments?
- Streamline banking platforms
- Reduce reliance on bank portals
- Provide security and controls of payments
- Offer visibility into cash
What do some treasury departments rely on instead of TMS?
Shortcut processes often based on Excel spreadsheets
Why are Excel spreadsheets considered to create false economies?
Their development time and effort may exceed the cost of a TMS
What risks are associated with using Excel spreadsheets in treasury management?
- Prone to errors
- Create control risks
What can a mistake in one cell of a spreadsheet lead to?
A missed payment or miscalculation of the company’s daily cash position
