Chapter 01

Question 1

Main goals of Treasury Management include…

Answer 1

• effectively and efficiently manage cash and related financial assets to provide financial flexibility needed to achieve the firm’s objectives in a manner consistent with the overall strategic plan.
• provide sufficient funds and info to sustain senior mgmt’s initiatives

Question 2

“Corporate governance” - what’s the purpose?

Answer 2

guides mgmt’s decision-making to achieve desired, strategic objectives

• maximize shareholder wealth
• provide beneficial outcomes for stakeholders (e.g., the board, mgmt, customers, employees, suppliers, and society in general).

Question 3

Role: investor relations manager

Answer 3

• provides access to annual reports
• manages regular investor briefings
• answers investors’ questions about the co.

Question 4

Role: controller

Answer 4

• primarily financial reporting
• often also AP, acc’ting, budgeting, coordinating with external auditors
• sometimes the following report to the controller (if not, to the CFO):
  
  • AR
  • FP&A
  • financial info systems

Question 5

Role: firm’s managers

Answer 5

Relative to corporate governance, a firm’s managers asusme the position of trustee/fiduciary for stakeholders (i.e. shareholders, customers, donors to NFPs, employees, and even society in general)

Question 6

Role: board of directors

Answer 6

• serves as “general authority” for all operations, including treasury
• approve business policies, major initiatives, and contracts
• decide whether or not to pay a dividend
• to facilitate daily operations, the board delegates authority for specific functions to treasury, generally via a board resolution:
  
  • open, close modify bank accounts
  • establish credit facilities
  • oversee investments
  • issue debt and equity securities
  • devise, implement and execute risk mgmt strategies.

Question 7

Role: Credit Manager

Answer 7

• preserves and collects AR
• sets corp. credit policies
• approves extension of credit terms and exposure limits to customers
• establishes info systems to monitor AR

Question 8

Role: “cash managers” (aka individuals responsible for funds management)

Answer 8

• interact often with depts. that directly impact cash mgmt and report to managers outside of Treasury (e.g. purchasing, AR, AP, corp risk mtmg, pension mgmt, IA, tax, FP&A, legal/acc’ting (GL)

Question 9

“Decentralized treasury” structure - list key facts and best practices

Answer 9

• Local subsidiary personnel offer familiarity w/ local language, biz and banking practices, customs and culture.
• Head office periodically reviews local offices for conformance with policies, procedures, and controls. (IA does this, in large corps.)
• Field (local) personnel perform some daily treasury functions (but, typically w/ some a duplication of effort/resources across units.)

Question 10

Centralized treasury (benefits/disadvantages)

Answer 10

Benefits:

• stronger control
• economies of scale
• lower operating costs

Disadvantages:

• field office personnel have reduced autonomy.

Question 11

Shared services center (SCC): why do this?

Answer 11

• reduce costs of multiple/duplicate operations (i.e. SCC becomes an internal service provider similar to an external vendor)
• standardize processes
• increase quality and timeliness of services (strategic flexibility)
• stronger internal controls