The organization of treasury can vary depending on the size and complexity of the company. However, there are some common functions that are typically found in a treasury department, including:
- Cash management: This involves managing the company’s cash inflows and outflows to ensure that it has sufficient funds to meet its obligations.
- Investment management: This involves investing the company’s excess funds in a way that maximizes returns while minimizing risk.
- Risk management: This involves identifying and mitigating risks to the company’s financial health, such as interest rate risk, foreign exchange risk, and liquidity risk.
- Banking relationships: This involves managing the company’s relationships with its banks, such as negotiating terms and conditions of loans and deposits.
- Foreign exchange: This involves managing the company’s foreign currency exposures, such as hedging against currency fluctuations.
- Collateral management: This involves managing the company’s collateral assets, such as securities and letters of credit.
- Compliance: This involves ensuring that the company complies with all applicable treasury regulations.
The treasury department may be organized in a centralized or decentralized manner. In a centralized treasury department, all of the treasury functions are located in a single department. This is typically the case in large companies with complex treasury operations. In a decentralized treasury department, the treasury functions are divided between different departments, such as the finance department, the accounting department, and the risk management department. This is typically the case in smaller companies with less complex treasury operations.
MCQs on the organization of treasury
- Which of the following is not a common function of a treasury department?
- Cash management
- Investment management
- Risk management
- Accounting
- Answer: Accounting
- The treasury department is typically organized in a:
- Centralized manner
- Decentralized manner
- Both centralized and decentralized manner
- Neither centralized nor decentralized manner
- Answer: Centralized or decentralized manner
- Which of the following is not a benefit of a centralized treasury department?
- Improved efficiency
- Enhanced control
- Reduced risk
- Increased costs
- Answer: Increased costs
- Which of the following is not a challenge of a decentralized treasury department?
- Lack of coordination
- Increased risk
- Reduced efficiency
- Increased costs
- Answer: Increased efficiency
- Which of the following is the most important factor in determining the appropriate organization of treasury?
- The size of the company
- The complexity of the company’s treasury operations
- The company’s risk appetite
- The company’s culture
- Answer: The size of the company and the complexity of the company’s treasury operations
Conclusion
The organization of treasury is an important decision that should be made based on the specific needs of the company. There is no one-size-fits-all solution, and the best approach will vary depending on the size, complexity, and risk appetite of the company.
Here are some additional points about the organization of treasury:
- The treasury department should be aligned with the company’s overall business strategy.
- The treasury department should have a clear mandate and reporting lines.
- The treasury department should have access to the resources it needs to be effective.
- The treasury department should have a strong risk management culture.
- The treasury department should be staffed with qualified and experienced professionals.
The organization of treasury is a dynamic process that should be reviewed regularly to ensure that it is still appropriate for the company’s needs.