The treasurer carries a dual role which is both strategic and operational. While being responsible for many functions, the treasurer also manages the channels (treasury systems, operations and control) through which they are delivered.
Currency management, funding management, investement management, bank relationship management, risk management, and cash management are the main roles that treasures play and which varies as a result of company’s size and its line of business.
There are many reasons why a company may need to engage in foreign exchange transactions. At its simplest level, this may be no more than the purchase or sale of currencies against a base currency. Trades may be done on a standard spot basis (Le. usually trade today for settlement two working days ahead), but in certain cases one day ahead, (tomorrow/next day which is commonly abbreviated to `tom/next’ for settlement the day after the trade), or for same-day settlement. Alternatively, there may be trades in the forward or futures markets where trades that are fixed today will not settle for many days, weeks, months or even years. Managing the risk created by a company’s currency transactions or positions is a large part of the treasurer’s role. Many of these trades are carried out over the telephone with a bank dealer. Increasingly, however, trades, particularly for smaller amounts, are carried out electronically using a multibank portal. The treasurer’s role tends to be in setting hedging policies and longer-term trades, while the cash manager or treasury dealer executes the transactions.
This relates to the management of core borrowing facilities and long-term debt (i.e. with a maturity in excess of one year). Debt may be a simple term loan, or a more sophisticated instrument, such as a bond issue or redeemable debentures. Debt under one year is usually considered a cash management function.
Management of both short and long-term investments are a key treasury responsibility. Some businesses have long-term ‘cash piles’, while others have more occasional investment needs. Investments maturing in periods of less than one year are considered a cash management function.
Bank relationship management
The bank relationship management function is an important one, crucial to ensuring that the company has sufficient access to credit and services to support its business. It determines with whom the company will transact its banking business, on what basis and in what proportion. The role is sufficiently important that some large companies employ a dedicated senior treasury professional to keep its funders advised of its needs and activities and to provide a focal point for bank negotiations and selection. This is also the area that manages the relationship with the credit rating agencies.
Regardless of size, all companies need to keep track of the business they transact with each bank, with a view to meeting current and future banking needs. There is also a need to track the performance of banks and to ensure that relationships are mutually beneficial. Whether it adopts a transaction or relationship-based approach to purchasing bank services, the exact form of a company’s relationship with its banks is frequently reviewed and especially at times of tightened liquidity or reduced credit standing.
As mentioned under currency management above, the treasurer is involved in setting risk management policy and approving hedging strategies. The traditional areas of risk management of concern to the treasurer relate to currency risk and interest rate risk but increasingly include counterparty risk, settlement risk and commodity risk.
The cash management function means very different things to different companies. In some companies, it can include handling petty cash, supplying (and buying back) currency for staff-travel purposes or even management of the postage stamps! The next section describes the core cash management functions in more detail.
Treasures plays dual role as administration of business practices to create the highest level of efficiency possible and efficiency to maximize the profit of an organization and continuously planning, monitoring, analysis and assessment of all that is necessary for an organization to meet its goals and objectives.