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What Is A Corporate Treasury?

A finance function critical to the financial health and profitability of any firm, large or small, the role of treasurer requires knowledge of numerous areas of business as well as the ability to communicate with a wide range of financial professionals.

The rapid development of the profession in the 1970s was most likely a result of the decade’s high inflation and financial uncertainties. Today, corporate treasury departments can be seen as the logical response and effective in-house counterpart to external bankers, and they are undoubtedly the conduit through which day-to-day transactions and communications travel.

What Is The Function Of A Corporate Treasury?

What a firm expects from its treasury department is heavily influenced by the nature of the firm’s activities and the obligations entrusted to it by senior management. Every company takes risks. It is the treasury professional’s responsibility to identify, assess, and manage these risks for them to support the business’s objectives.

In general, the Corporate Treasury manages the organization’s liquidity risks, banking relationships,  financial risks, working capital and supporting management and business units.

The Treasury Department may also comprise the mergers and acquisitions team, corporate finance, corporate planning, pension fund management, economic analysis, and fintech in some organizations.

Fundamental Tasks Of The Corporate Treasury

Cash management

The importance of treasury in managing cash – and other short-term assets – to manage the firm’s liabilities cannot be overstated. The function may appear simple, but the cash management function of the world’s most successful corporations and financial service providers employs a significant amount of resources and treasury intelligence.

The corporate treasury will collaborate closely with the finance and accounting departments on the cash management role to ensure that the firm is in good health and supporting its network.

Foreign exchange

Being able to manage the flow of funds across borders to different strands of the business while accounting for currency fluctuations – and monitoring for potential future changes in foreign exchange based on a variety of factors such as interest rates in different jurisdictions – has become increasingly important as firms expand across global markets.

Investments and funding

One of the key metrics in evaluating the effectiveness of the corporate treasury department is its capacity to successfully invest available cash while accounting for short-term liabilities. When determining the likely returns on an investment, the treasury will collaborate closely with the company’s finance department to analyze both the investment proposition and the opportunity costs associated with providing funds for the undertaking.

Financial supply chain

The management of the firm’s funds across its supply chain will inevitably be decided upon by its corporate treasury, which it leans on for the smooth transfer of those funds across its network. 

Risk management

Assessing a firm’s risk profile is an important factor in determining which way to drive the company. When the C-suite has agreed on the levels at which the rest of the company should set its exposures, the treasury is in charge of ensuring that those risk levels are delivered.

In Conclusion

Traditionally, many treasurers were trained as accountants and performed treasury functions as a sideline to their accounting responsibilities. Over time, treasury management has become more  specialized and complex as a result of the development and proliferation of financial instruments, as well as the globalization of financial markets and companies. Treasurers are increasingly involved in working with a company’s top management to control risk and boost the bottom line, in addition to managing working capital.

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