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Asia-Pacific
Treasury Management
Handbook
The Asia-Pacific Treasury Management Handbook is a valuable resource for treasury professionals working in or expanding into the APAC region. Get ahead in the evolving world of treasury as you explore the topics and emerging trends described in the handbook.
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15 Country Profiles
Chapter Overviews
15 Country Profiles
Taiwan
Taiwan offers companies a sophisticated financial and legal environment in which to establish operations. There are no foreign-exchange controls on the conversion of the TWD for trade-related transactions and profits can be remitted freely. A range of short-term investment instruments are offered by the country’s banks. Formosa bonds, bonds issued by Taiwanese branches of overseas companies in a currency other than the TWD, can be issued.
However, Taiwan does operate a number of exchange controls: cross-border cash management schemes are not permitted, for example, and foreign-owned companies must obtain prior approval from relevant government ministries when wishing to borrow funds from abroad.
Take-aways
Bank accounts
Non-residents are permitted to open foreign currency accounts in Taiwan, but strict restrictions apply to domestic currency accounts.
Payment & collection instruments
Post-dated cheques are a common payment instrument. Cheques are valid for one year.
Mobile payment via electronic services such as Line Pay and JKoPay, as well via mobile wallets, are widely used.
Taxation: in detail
The corporate income tax rate is 20%.
Corporate incentives
Foreign companies performing certain activities in free-trade-zones are exempt from corporate income tax.
Hong Kong
Hong Kong’s close relationship with Mainland China and its position as a global financial centre is reflected across its financial and payment systems. Payment and clearing systems for HKD, RMB, USD and EUR transactions operate on a RTGS basis while HKD, USD and RMB cheque clearing services operate between Hong Kong-Guangdong, Hong Kong-Shenzhen and Hong Kong-Macau.
Hong Kong has been quick to embrace new technologies; eight licences have been granted to virtual banks. It is possible for funds to be transferred through the use of aliases and a standard QR payment code, the HKQR, has been adopted to facilitate the interoperability of payment schemes.
Take-aways
Bank accounts
Non-residents are permitted to open both domestic and foreign currency accounts. Domestic currency accounts are fully convertible.
Taxation: in detail
A two-tiered profits tax is levied: 8.25% for corporations on the first HKD 2 million of assessable profits and 16.5% for corporations on the remainder of assessable profits.
Corporate incentives
Qualifying corporate treasury centres (QCTCs) are taxed at a reduced profits tax rate. The QCTC regime also allows for an interest deduction on money borrowed from associated companies.
Liquidity management
Domestic and cross-border cash concentration and notional pooling is permitted.
Foreign Exchange market
There are no controls on capital transactions.
Vietnam
Vietnam increasingly attracts high levels of foreign investment. Companies operating in Vietnam are permitted to use both domestic cash concentration and notional pooling (in domestic and foreign currency) within the same legal entity. Cross-border cash management schemes are not permitted.
Non-residents may hold foreign and domestic currency accounts although the majority of transactions must be carried out in domestic currency. Foreign investors are permitted to use foreign currency to remit their profits, which may be remitted once a year.
Vietnam offers companies a number of incentives including lower corporate income tax rates. Locating in areas of extremely disadvantageous socio-economic conditions brings further financial incentives.
Take-aways
Payment & collection instruments
Credit transfers are the most common type of cashless payment by volume.
Taxation: in detail
The standard corporate income tax rate is 20%. Higher tax rates apply to oil and gas sectors.
Foreign exchange market
As of 1 October 2019 domestic banks no longer offer medium and long-term loans in foreign currency to pay for imports.
The Vietnamese dong is not freely convertible and cannot be remitted overseas.
Short-term investment alternatives
Interest is offered on current and savings accounts.
South Korea
Although the 2019 Tax Reform repealed a 100% CIT exemption for the first five years, South Korea still offers numerous investment incentives, including a tax credit for job creation, and as such remains an attractive market for companies.
South Korea has liberalised foreign exchange controls. Companies can freely receive foreign exchange from abroad and profits can be remitted without restriction. Non-resident entities are able to hold domestic and foreign exchange accounts and can participate in domestic cash concentration schemes with resident entities.
Electronic payment methods dominate. Credit cards are the most popular payment method in volume terms, while digital payments via mobile phone are widespread.
Take-aways
Banking structure
In October 2019, an open banking system was launched enabling users to access the payment functions of various financial institutions on a single platform.
Payment instruments and collections
Credit transfers are the most popular cashless payment instrument. Clearing is via Bok-Wire+ (high-value) or KFTC retail payment systems.
Taxation: in detail
Corporate income tax is charged at 10% to 25% depending on total taxable income.
Liquidity management
Cross-border liquidity management is not available: the KRW many only be traded within South Korea.
Long-term funding
Foreign companies may issue KRW-denominated domestic bonds (Arirang).
Japan
Multinational companies establishing a regional treasury centre in Japan are offered a number of tax concessions, including a special corporate tax credit for companies investing in areas classified as Special Zones for Reconstruction. However, in addition to tax breaks and credits, there is a willingness by the government to remove any barriers to conducting business. For example, the government has adopted a proposal to reduce the cost to businesses of complying with administrative procedures by 20% by March 2020.
The government is actively promoting the use of electronic payments, and of digital payment in particular; cash remains the number one payment choice for retail purchases in-store.
Take-aways
Banking structure
Foreign companies typically prefer to borrow and invest with foreign banks but use domestic banks for deposit and payroll services.
Payment/Clearing system
Japan has two RTGS systems: BOJ-Net and FXYCS. FXYCS processes cross-border and non-resident payments.
Taxation: in detail
The effective tax rate for corporations (based upon the maximum rates applicable in Tokyo to a company whose paid-in capital is over JPY 100 million) is approximately 30%.
Foreign exchange market
There are no restrictions on the remittance of profits.
Long-term funding
Non-resident companies can issue JPY-denominated foreign (samurai) bonds and asset-backed foreign bonds.
Australia
Australia offers various tax incentives to financial institutions looking to set up operations in the country. In addition to capital investment initiatives and R&D tax credits, an RHQ programme facilitates the establishment of RHQs and regional operating centres by international companies.
Companies operating in Australia can take advantage of a suite of liquidity management solutions; a range of short-term investment alternatives are also offered by the country’s banks. Government securities, corporate bonds and kangaroo bonds are all available.
Australia’s sophisticated payment settlement systems provide a range of payment options for companies. Mobile and online payment schemes are widely available and used.
Take-aways
Banking structure
The rollout of open banking is set to be complete by July 1, 2021.
Bank accounts
Foreign and domestic currency accounts can be held by non-residents. AUD accounts are fully convertible.
Payment & collection instruments
Card payments are the most commonly used electronic payment instrument.
A national alias scheme, PayID, can be linked to a nominated bank account.
Taxation: in detail
Present tax rate of 30% rate will be reduced to 25% by 2021-22 income year.
Sri Lanka
Sri Lanka operates a three-tier corporate income tax structure, with a standard rate of 28%. For companies establishing their headquarters or regional headquarters in the country, Sri Lanka offers a rate of 0% for three years.
Non-residents are permitted to open domestic and foreign currency accounts; restrictions apply. Special foreign investment deposit accounts can be held which are exempt from withholding and income tax. All non-resident investments in domestic currency must be conducted via securities investment accounts (all transactions between residents must be conducted in domestic currency).
Cash concentration is permitted, but only on savings account balances and from foreign currency banking units.
Take-aways
Payment & collection instruments
QR payments are a common payment option. LANKAQR is the common standard.
Digital payment scheme JustPay enables real-time retail payments below LKR 10,000.
Cheques can be denominated in USD or LKR.
Taxation: in figures
WHT on dividends and royalties is 14%. A WHT of 5% is charged on interest.
Foreign exchange market
Profits are not required to be remitted back to Sri Lanka, provided the funds are not used to acquire property or other capital assets abroad.
Short-term investment alternatives
Interest can be earned on resident and non-resident savings accounts.
Pakistan
Pakistan’s digital payments sector is in its infancy, with cheques the most commonly used payment instrument in volume terms. Cheques can be denominated in PKR or USD. However, electronic payments are increasingly used, with double-digit growth of both credit transfers and payment card transactions in 2019. Electronic payments are cleared and settled via the country’s RTGS system, PRISM, or 1Link.
Pakistan is keen to facilitate foreign investment and offers a number of tax concessions. For companies operating in Pakistan, non-resident accounts are available in both domestic and foreign currency, although restrictions apply. Foreign exchange controls also permit 100% repatriation of dividends and profits.
Take-aways
Payment & collection instruments
QR payment codes are available. All QR codes will be standardised by March 2020 to QRCPS to simplify payments across multiple e-payment platforms.
Taxation: in detail
The corporate income tax rate is 29% for the 2019 tax year. The rate will be cut by 1 percentage point a year until it reaches 25% in the 2023 tax year.
CFC rules applies from the 2019 tax year and attributes income of a CFC to a greater-than-10% shareholder resident in Pakistan.
Liquidity management
Domestic cash concentration is permitted between resident and non-resident companies in PKR.
Foreign exchange market
Foreign-controlled companies can obtain loans in PKR from authorised dealers.
Indonesia
Indonesia’s foreign exchange controls can prove challenging for non-residents. Domestic banks are prohibited from granting credit to non-residents (including overdrafts in IDR or foreign currencies) for example, while liquidity management schemes are permitted for resident companies only. However, the government is promoting Indonesia to foreign companies and offers a number of tax incentives including a tax holiday of 100% of CIT for over 20 years.
Indonesia’s digital infrastructure is in its infancy. Mobile wallet schemes are available, with 38 e-wallet apps registered with the central bank, and there is a national QR code standard, QRIS. The new National Payment Gateway system clears and settles all cashless payment transactions.
Take-aways
Bank accounts
Non-residents are permitted to hold domestic and foreign currency accounts. Foreign currency is fully convertible.
Payment & collection instruments
Single and multipurpose stored value cards are limited to a maximum monthly spend of IDR 20 million.
Payment systems/Clearing
Indonesia operates three clearing systems: BI-RTGS, SKNBI and the National Payment Gateway.
Taxation: in detail
The corporate income tax rate is 25%.
Long-term funding
There are a number of government institutions involved in developing and financing infrastructure projects, including the Indonesian Infrastructure Guarantee Fund.
China
China continues to liberalise its banking sector (the CBIRC has removed license requirements for foreign lenders for custody and advisory services and bond underwriting). China has also eased some of its tight foreign exchange controls which restrict the flow of funds into and out of the country. The CIPS clearing system enables cross-border RMB payments to be settled on an RTGS basis.
Shanghai (and Guangdong Province), keen to attract RHQs, has reduced the minimum total assets requirement of the parent company to USD 200 million from USD 300 million, and introduced 13 measures to support the free flow of funds and cross-border RMB business.
Take-aways
Bank accounts
Non-residents are permitted to hold both domestic and foreign currency accounts within China. Restrictions apply.
Payment & collection instruments
In volume terms, payments cards are the most popular electronic payment method in China. China UnionPay controls over 90% market.
Taxation: in detail
The standard rate of corporate income tax is 25%. Special rates apply to certain business and small -scale enterprises.
Liquidity management
Entrustment loan agreements are no longer available in China as a method of facilitating cash concentration. Cross-border cash concentration is possible.
Since March 2019, an MNC can set up a multi-currency cash pool (including RMB) rather than having to establish separate foreign exchange and RMB cash pools.
Foreign exchange market
For joint ventures, profits cannot be distributed until losses from the previous year have been made up.
Malaysia
Malaysia is a key destination for regional treasury centres. Companies that are approved as principal hubs are subject to CIT at tiered rates of 0%, 5% and 10% for up to ten years. The ease of doing business in Malaysia extends to its liberal foreign exchange controls which allow profits to be remitted without restriction and for foreign currency to be imported and exported freely.
Digital payments are increasingly being used for both retail and corporate payments. Payments are processed in real time by PayNet. PayNet’s DuitNow QR is the national QR standard while its DuitNow app can be used to make transfers via aliases.
Take-aways
Bank accounts
Non-residents are permitted to hold both domestic and foreign currency accounts within Malaysia. Domestic accounts are freely convertible.
Taxation
The standard corporate income tax rate of 24%. A Labuan company (Malaysia’s offshore financial centre) carrying on a Labuan business activity is taxed at 3% of the audited accounting profit.
Liquidity management
Domestic and cross-border cash concentration is permitted between residents and non-residents. Prior central bank approval is required.
Foreign exchange market
The MYR is not legal tender outside Malaysia.
Long-term funding
To develop the country’s tourism industry, financial assistance is offered through the SFT3 by the Ministry of Tourism, Arts and Culture Malaysia for up to 20 years. The fund size is MYR 1 billion.
Philippines
Digital payments are the most widely used payment instrument in the Philippines by volume (cheques remain the most used payment instrument in value terms). QR payment codes are commonly used and a National QR Code Standard has been adopted ensuring interoperability of QR-enabled services. InstaPay, a near-real-time payment system, enables fast settlement of digital payments.
The Philippines is positioning itself as an ideal location for regional headquarters. As such, it offers special tax incentive programmes for multinational companies establishing RHQs there, including exemption from corporate income tax, VAT and local taxes. Companies operating in special economic zones benefit from up to six years of tax exemption.
Take-aways
Bank accounts
Non-residents are permitted to hold domestic and foreign currency accounts within the Philippines. Restrictions apply and domestic accounts are not freely convertible.
Payment/Clearing systems
USD-denominated payments are cleared and settled via the PDDTS. Citibank Philippines is the settlement bank.
Taxation: in detail
The CIT rate of 30% will be cut to 20% in annual increments of 1 percentage point over a 10-year period starting in 2020 under CITRA 2019.
Liquidity management
Domestic cash concentration is permitted between resident and non-resident companies. Zero and target balancing most widely practised.
Long-term funding
The Philippines has 19 investment promotion agencies offering incentive packages. The Board of Investments is the leading investments promotion agency.
India
India is aggressively pursuing a digital agenda, so there are numerous digital payment platforms available. Government initiatives, such as UPI and the Aadhaar Enabled Payment System (AEPS), have resulted in a huge increase in electronic retail payments. Both the UPI and AEPS enable payments to be made via aliases. Mobile/digital wallet payments already exceed payments made via payment card. However, despite the widespread adoption of digital payments, the use of cash and cheques remains high; the value of cheque payments in 2017 rose 1.2%.
India is a common location for treasury services centres and 100% exemption from tax on business profits for five years is available.
Take-aways
Banking structure
Payment banks, which can currently accept current and savings deposits up to a limit of INR 1 lakh, are to be allowed to apply for a licence that will enable them to expand the number and scope of the payments they can offer.
Bank accounts
Non-residents are permitted to open both domestic and foreign currency bank accounts. However, restrictions do apply.
Taxation: in detail
Domestic companies are liable to standard corporate income tax at 25.17%. For foreign companies and branches of foreign companies, the standard rate is 40%.
Liquidity management
Domestic cash concentration is permitted: sweeping and target balancing are used to concentrate liquidity across multiple accounts within a single entity.
Foreign exchange market
There are no restrictions on the remittance of profits.
Singapore
As part of the strategy to transform Singapore into a world-class financial centre, various tax incentives are offered to financial institutions looking to set up operations there. Singapore offers approved FTCs a reduced corporate tax rate of 8% on income from qualifying FTC services. Multinational headquarters based in Singapore receive a concessionary tax rate of as low as 5% on incremental income from qualifying activities while approved regional headquarters are taxed at 15% on qualifying overseas income.
Companies operating in Singapore benefit from a full suite of liquidity management services, in addition to a range of financing options. The SGD is fully convertible, and Singapore imposes very few exchange controls.
Take-aways
Bank accounts
Non-residents are permitted to open domestic and foreign currency accounts within Singapore.
Payment & collection instruments
Post-dated cheques are a common payment instrument. Cheques are valid for one year.
Mobile payment via electronic services such as Line Pay and JKoPay, as well via mobile wallets, are widely used.
Taxation: in detail
The corporate income tax rate is 17%. A partial tax exemption is given to companies on chargeable income of up to SGD 200,000
.
Liquidity management
Domestic cash concentration and notional pooling is permitted between resident and non-resident companies in both SGD and USD.
Cambodia
Cambodia’s FAST electronic payment service enables funds transfers up to KHR 40 million to be settled in near real time. FAST, along with other electronic payment methods such as mobile payments and QR payment codes, are being readily adopted in Cambodia. Paper-based payments remain a dominant payment instrument however, with cheque volumes and value increasing in 2018. Cheques can be denominated in domestic and currency and USD; Cambodia is a heavily dollarised country and over 80% of deposits and credits in the financial system are made in US dollars.
For companies doing business in Cambodia, there are no restrictions on foreign exchange operations; profits can be remitted freely, as long as the transfers are made via an authorised bank.
Take-aways
Bank accounts
Non-resident bank accounts are permitted in both domestic and foreign currency and are fully convertible.
Payment & collection instruments
The EMV stand QR has been adopted in Cambodia.
Taxation: in detail
The standard corporate income tax rate is 20%.
Liquidity management
Domestic cash concentration is permitted between resident and non-resident companies in domestic and foreign currency.
Short-term investment alternatives
A securities market is in its nascent stages of development so there are limited short-term investment options available.
China
South Korea
Japan
Taiwan
Philippines
Indonesia
Australia
Singapore
Malaysia
Hong Kong
Vietnam
Cambodia
Sri Lanka
India
Pakistan
Chapter Overviews
1
3
4
5
6
7
8
9
10
11
12
2
Overview of Treasury Management in Asia-Pacific
Financial Environment
Treasury Organisation
Liquidity Management
Short-term Investment
Short-term Borrowing
Bank Relationship Management
Financial Risk Management
Treasury Technology
Treasury Controls
Merger & Acquisition for a Regional Treasury Centre
Treasury 2025
Treasury 2025
Chapter 1
Overview of Treasury Management in Asia-Pacific
1. INTRODUCTION TO TREASURY MANAGEMENT
Effective treasury management is a critical component of a company’s business strategy. At its simplest, treasury management means having sufficient cash in the right place, at the right time and in the correct currency, to ensure a company can meet all its obligations. Failure to do so will make it difficult or impossible for a company to achieve its broader business objectives.
That said, successful treasury management involves much more than simply ensuring the payment of invoices on their due date. As companies expand and become more complex, with multiple entities operating in a number of jurisdictions, achieving effective treasury management becomes more challenging. As companies change, so do their exposures to risk and the pattern and nature of their cash flows and positions. It is the treasurer’s job to identify, measure and manage these risks, which could affect a company’s ability to meet its treasury management objectives.
Understanding these changing dynamics is central to the treasurer’s role within the business, for two broad reasons. First, it helps the treasury department ensure obligations are met on a daily basis, and second, if provided with an in-depth insight into the business, the treasurer is able to adopt a more strategic role and help the company both to set strategic objectives that reflect its appetite for risk and help achieve those objectives over time.
2. TREASURY DEPARTMENT RESPONSIBILITIES
The treasury department is part of a company’s wider finance function, which also includes accounts payable and receivable, accounting, tax and financial planning and analysis. The finance function’s structure will reflect:
The company’s activities (e.g. which determine the pattern of the company’s cash flows, and need for borrowing);
The company’s geographic footprint (where companies with operations in
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Management in Asia-Pacific
Overview of Treasury
Chapter 2
Financial Environment
1. INTRODUCTION: HOW CORPORATE TREASURY INTERACTS
To fulfil their role effectively, treasury departments are required to interact with a broad range of internal and external parties.
Internally, how treasury interacts with other internal corporate functions and group operating companies, or business units, will be determined by its departmental structure. Local regulation, too, will affect how different group entities can interact, especially on a cross-border basis. Departmental structure is the focus of Chapter 3 of this Handbook.
Externally, treasury has to interact with a range of third-party organisations, within a regulatory framework set by a number of legislators and regulators. Understanding both the nature of the organisations with which treasury must interact and the rules under which those interactions are controlled is critical to achieving an efficient treasury operation.
A. Treasury Requirements
Treasurers interact with third parties for the following reasons:
To make payments to suppliers, employees, government authorities and lenders, often in multiple currencies;
To collect payments from customers, sometimes in multiple currencies;
To borrow funds from lenders;
To hold funds with banks and with investors; and
To manage any associated risks.
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2. TREASURY DEPARTMENT RESPONSIBILITIES
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B. Treasury Counterparts
To meet these requirements, treasurers rely on the support of a range of external providers, including:
Financial Environment
Chapter 3
Treasury Organisation
1. INTRODUCTION: CORPORATE TREASURY IN THE BUSINESS
The previous chapter outlined how corporate treasury departments interact with third parties, including banks, payment service providers, asset managers and institutional investors. It also discussed how legislation and regulation affect the choices treasurers have when determining departmental strategy and policy.
This chapter focuses on the role corporate treasury plays within its own organisation, by discussing the different structures treasurers can adopt in order to manage both its own operations and its relationships with internal and external third parties.
2. THE TREASURY DEPARTMENT
In many organisations, the role and influence of the treasury department has increased in recent years. Improvements in treasury technology, globalisation and the evolving regulatory environment have afforded treasurers the opportunity to play a much wider role in their
Group finance;
Accounts payable;
Accounts receivable;
Procurement and supply chain;
Sales;
Legal, tax and accounting;
Financial planning and analysis (FP&A);
Risk management;
Internal audit;
IT.
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organisations, from greater involvement in strategic planning to the exercise of more operational control over group-wide treasury activity across multiple jurisdictions.
A. Internal Treasury Counterparts
To be as effective as possible, treasury needs to interact with a range of internal counterparts (in addition to the external counterparts outlined in Chapter 2), including:
Treasury Organisation
Chapter 4
Liquidity Management
1. INTRODUCTION
Managing liquidity is core to the treasury department’s role within the business. Efficient use of cash ensures the company can meet its obligations to lenders, suppliers and governments, without becoming over-reliant on external sources of finance.
To be able to manage cash efficiently, treasury practitioners need to have a detailed knowledge of the way cash flows through their business. Understanding cash flow helps the practitioner anticipate borrowing requirements and helps to ensure cash is in place at the right time to meet corporate obligations. This also helps central treasury and corporate management demonstrate control over group activities.
Treasurers will want to maximise their visibility of group cash. Improvements in both corporate treasury and bank technology mean it is now much easier for treasury practitioners to obtain real-time information on activity across bank accounts located around the world. This applies whether accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely.
2. WORKING CAPITAL MANAGEMENT
In most organisations, there are three core operational timelines that result in cash flows. Understanding the implications of these timelines is central to a company’s ability to manage its working capital efficiently.
The three timelines are:
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Procure-to-pay. This is the time between the purchase of raw materials, retail goods or services, and the point at which funds leave the firm’s bank account to pay the supplier. The procure-to-pay period results in cash outflows managed
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Liquidity Management
Chapter 5
Short-term Investment
Any company with surplus cash to invest has to place that cash somewhere. Even a decision to keep cash in bank accounts held with the company’s cash management bank is an investment decision. This might be appropriate for companies with limited cash balances. However, once a company has significant volumes of surplus cash, the treasurer will need to be more proactive to ensure the security of this cash.
Developing a clear investment policy helps the treasury practitioner consider the objectives when investing cash before setting parameters designed to meet them. Treasurers in regional treasury centres or local business units will usually be required to adopt the group liquidity management policy. The group liquidity management policy will determine how any surplus cash is used, such as whether cash is pooled and, if so, where cash is concentrated to. Any surplus cash, whether in a cash pool or in a non-pooled account, will be managed in line with the group short-term investment policy.
1. INTRODUCTION
2. FEATURES OF AN INVESTMENT POLICY
A short-term investment policy should set out the company’s approach to the following issues:
A. Categorising, or Segmenting, Cash
Having a clear understanding of corporate cash positions is essential if a company is to manage cash effectively. Only by having accurate data on the amounts of surplus cash available to invest and the expected future cash requirements can a treasurer really understand how best to place cash and, critically, the degree of risk to principal and liquidity the company can tolerate. For companies with significant amounts of cash, it is helpful to be able to stratify this cash into different ‘buckets’, with each bucket representing a different tolerance for risk. Each bucket can then be invested in instruments which reflect that tolerance.
Broadly speaking, companies can
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Short-term Investment
Chapter 6
Short-term Borrowing
There are a number of different borrowing vehicles available to corporate treasury practitioners. Not all types of funding are suitable for all borrowers. Some borrowers rely on one type, whereas others use a combination of techniques as part of a robust funding strategy designed to ensure liquidity at minimum cost. Borrowing can be arranged in three main ways: from the money and capital markets, from commercial sources, and from banks.
Short-term funding is primarily available via the issue of commercial paper. It is also possible to issue short-term bonds, either on a standalone basis or as part of a wider MTN (medium-term note) programme.
A. Commercial Paper (CP)
Commercial paper is issued by companies and other issuers, usually in the form of unregistered promissory notes. Regulations in the jurisdiction in which the paper is issued usually determine its maximum maturity. These regulations usually cover the security registration requirements of the local regulator. For example, in the USA, securities with a maturity over 270 days have to be registered with the Securities and Exchange Commission (under the terms of the 1940 Investment Company Act). Regulations also usually prevent commercial paper being marketed to retail investors. This is generally done by setting a relatively high minimum denomination for issued paper (often USD 100,000, or the foreign currency equivalent), or by explicitly limiting issuance to institutional investors. This also has the effect of pricing small and medium-sized enterprises out of the commercial paper market.
Borrowers can issue commercial paper for any maturity up to the maximum permitted in the relevant jurisdiction. Paper is usually issued at a discount to the face value, with the paper being a commitment by the issuer to pay the holder the face value on maturity. Although many investors choose to hold commercial paper to maturity, it can be sold in the secondary market, meaning that the identity of the holder may change during the paper’s issuance. Many companies that use commercial paper as a source of working capital will seek to repay holders
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1. MONEY AND CAPITAL MARKET FUNDING
Short-term Borrowing
Chapter 7
Bank Relationship Management
Of all external partnerships, a good set of global banking relationships is probably the most important contributor to an effective treasury department. Achieving and maintaining them is also probably one of the hardest of the treasurer’s tasks. Fundamentally, there is an underlying tension between having a wide enough banking group to provide all the services required and a small enough number of banks that can be managed efficiently and rewarded appropriately.
Managing bank relationships is time-consuming; an effective bank relationship develops through the sharing of information and the achievement of efficient solutions to a company’s challenges. For an organisation with multiple bank relationships, much of the relationship management cannot be scaled – managing four bank relationships takes broadly four times longer than managing one.
Managing multiple bank relationships is also complex. Despite moves towards standardisation, there remain significant differences between the ways banks perform key tasks. This complicates the introduction of streamlined approaches to managing treasury activities. As an example, banks have a tendency to add their own requirements for particular fields in standard message formats, making it more complex to integrate data feeds from different institutions onto the same platform. At the same time, each bank needs to be appropriately compensated for the services it provides. Over time, this changes as certain activities become commoditised, reducing the bank’s ability to charge a margin; as an example, payment processing is no longer as remunerative for a bank as it once was.
Given this, a treasury practitioner might consider minimising the number of bank relationships. Certainly, one bank may be sufficient for most small organisations or for larger ones with a simple group structure. However, any company with a degree of complexity, especially from an international presence, or which grows beyond a particular size, will need to consider having more than one bank relationship.
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Bank Relationship Management
Chapter 8
Financial Risk Management
Treasurers are generally responsible for managing financial risk. This will include foreign exchange and interest rate risk, as well as, in some companies, commodity price risk. Each company should have a financial risk management policy that reflects its broader appetite for risk. This will usually be supported by a series of operating procedures designed to implement each section of the financial risk policy.
There are three stages to setting a risk management policy: the identification of the policy objectives, the determination of the extent to which exposures should be actively managed, and the tools permitted to be used to manage these exposures. These are examined in turn and focus on managing foreign exchange and interest rate risk.
A. Objectives of Financial Risk Management Policy
Whether reviewing an existing policy or implementing one for the first time, the company must agree its risk management objectives. Without understanding and, crucially, communicating the purpose of any risk management policy, it is unlikely to be successful.
Setting the objectives of a risk management policy is a strategic, rather than a tactical, issue; a decision to expand into a new territory, for example, is a good example of a strategic decision exposing a company to foreign exchange risk. For this reason, the objectives should be agreed at board level; the board is responsible for determining the company’s attitude to risk. The treasurer’s role at this point should be to present a set of alternative approaches to managing foreign exchange and interest rate risk (perhaps as part of a wider presentation of financial risks) and to highlight the implications of the alternative approaches. Showing how different approaches can affect earnings or balance sheet volatility, for example, can help the board visualise its attitude to risk and form a decision.
1. SETTING A FINANCIAL RISK MANAGEMENT POLICY
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Financial Risk Management
Chapter 9
Treasury Technology
Treasurers use technology in a variety of different ways during the course of each day. They rely on banks to provide transaction and balance information and, in most cases, to execute a range of transactions from salary payments to automated overnight sweeps. Treasurers also use technology to record their operational activity and to support strategic and tactical decision-making. The technology used in the treasury department varies from standard spreadsheet applications to enterprise resource planning (ERP) systems, treasury management systems (TMS) and specialist treasury software that supports a particular activity.
Technology plays an important role in treasury in two, interrelated, ways:
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Ever improving functionality allows treasurers to expand their visibility over, and therefore their control of, a much wider range of activities within their organisations. As shown in this chapter, treasurers are involved across the full extent of working capital management, supporting the activities of business units in both accounts payable and receivable. Having earlier, and more accurate, forecasts of cash positions allows the treasurer to plan short-term and longer-term borrowings and investments more effectively, reducing costs for the business.
Improved workflow functionality enables much of the mundane daily operational activity to be automated. Treasury technology can embed a range of controls that ensure that, for example, certain positions are hedged and others trigger a requirement for an individual to take action to monitor and manage. Within an automated workflow, most activity is managed without the need for manual intervention. This means the treasury team focuses on exceptions only, with the result that increased time becomes available for treasurers to consider strategic decisions and to work on broader projects. Treasurers are increasingly seen supporting the board in the adoption of more sophisticated enterprise risk management strategies and working with other operational areas to identify ways to improve efficiency in the financial supply chain.
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Treasury Technology
Chapter 10
Treasury Controls
Treasury departments adopt treasury policies and procedures to help them manage cash and financial risk. There are four principal reasons why treasury policies and procedures are necessary:
accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely.
1. INTRODUCTION
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To ensure efficient operations. By setting clear policies and procedures, the treasurer will ensure operational processes are performed in a consistent manner. And, by defining responsibilities, the treasurer makes individuals accountable to ensure tasks are
performed efficiently.
To demonstrate board control. By setting treasury policies, the board can show it has exercised control over treasury activities. This is especially important in large, multinational organisations. While the board will approve the treasury policy, they will usually delegate the authority to develop procedures and controls to the treasury department.
To manage risk. All companies, however large or complex, need a clear set of operating procedures and controls to help to minimise the exposure to operational risk.
To achieve compliance with relevant regulatory and legal requirements.
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However, there are many operational risks that may prevent the adopt policies and procedures working as expected. This chapter identifies treasury operational risks and explains how treasurers can manage them.
Treasury Controls
Chapter 11
Merger & Acquisition for a Regional Treasury Centre
Any decision to change the structure of a business, especially through merger or acquisition, will generally provide an opportunity to reorganise treasury operations. For companies with a global footprint, expanding the business may offer the opportunity to establish regional treasury centres. Where a regional treasury centre already exists, a merger may offer the opportunity to extend the services that the centre provides. Combining two treasury structures may also justify investment in new technology and provide the treasury with the opportunity to target operational efficiency in the management of cash, liquidity and risk. The specific opportunities for efficiency gains and structural changes will depend on the nature of the businesses being combined, including their treasury management structures, and the objectives of the merger, including whether operational efficiency through support function integration is important.
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In any corporate event, whether merger, acquisition or divestment, there are three distinct stages:
1. INTRODUCTION
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2. PHASES IN A MERGER OR ACQUISITION
The initial, pre-agreement phase, during which time the transaction is under consideration;
The pre-completion phase, during which time the company has to prepare to both complete the transaction and be able to assume control of the new entity (or for the to-be-divested unit to prepare for independence); and
The post-completion period, which involves the ongoing operation of the changed company.
A. Pre-agreement
The focus of the pre-agreement phase is to establish whether a potential transaction fits the company’s strategic objectives. During this phase, the primary objective is to identify whether the proposed transaction makes economic sense.
Merger & Acquisition for a Regional Treasury Centre
Chapter 12
Treasury 2025
As with any role, that of the treasury professional is gradually evolving as companies adapt to the changing business environment. For treasury professionals, much of this evolution is driven by two factors: changes to regulation and technological development. This chapter assesses the effect of the replacement of LIBOR, which is a specific and imminent, change, and explores how treasurers can achieve and retain compliance with regulation, especially when they are responsible for operations in multiple jurisdictions. It then analyses the impact of new technology on corporate treasurers, focusing on the effect on payments, before outlining how to update a corporate payments strategy.
After 2021, the Bank of England will no longer require banks to provide the necessary data that enables the calculation of LIBOR. The number of LIBOR rates has already been dramatically reduced from 150 rates calculated daily (ten currencies for 15 maturities) to 35 rates (five currencies – CHF, EUR, GBP, JPY and USD – and for seven maturities – overnight/spot/next, one week, one month, two months, three months, six months, and 12 months). Over the coming years, LIBOR (and other interbank offered rates) will be replaced by a series of different risk-free rates, a process that will have major implications for corporate treasurers. Offered rates, such as LIBOR, are widely used in intercompany loans, as well as for external investing and borrowing. Treasurers need to understand the implications of the transition away from LIBOR in two key respects: what replaces LIBOR and how the different methods of calculating the replacement rates will affect the way treasurers should use the replacement rates.
A. Why LIBOR is Being Replaced
LIBOR is being replaced for two inter-related reasons, both of which have resulted in a lack of confidence in the integrity of IBOR calculation rates.
First, regulators identified the imbalance between the limited amount of data used to calculate LIBOR rates and the value of the contracts written that reference LIBOR rates as a potential source of financial stability. For example, approximately 75% of
1. INTRODUCTION
2. REPLACING LIBOR
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1
Chapter 2
Financial Environment
Effective treasury management is a critical component of a company’s business strategy. At its simplest, treasury management means having sufficient cash in the right place, at the right time and in the correct currency, to ensure a company can meet all its obligations. Failure to do so will make it difficult or impossible for a company to achieve its broader business objectives.
That said, successful treasury management involves much more than simply ensuring the payment of invoices on their due date. As companies expand and become more complex, with multiple entities operating in a number of jurisdictions, achieving effective treasury management becomes more challenging. As companies change, so do their exposures to risk and the pattern and nature of their cash flows and positions. It is the treasurer’s job to identify, measure and manage these risks, which could affect a company’s ability to meet its treasury management objectives.
Understanding these changing dynamics is central to the treasurer’s role within the business, for two broad reasons. First, it helps the treasury department ensure obligations are met on a daily basis, and
1. INTRODUCTION TO TREASURY MANAGEMENT
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1. INTRODUCTION: HOW CORPORATE TREASURY INTERACTS
A. Treasury Requirements
Treasurers interact with third parties for the following reasons:
2
Chapter 3
Treasury Organisation
To fulfil their role effectively, treasury departments are required to interact with a broad range of internal and external parties.
Internally, how treasury interacts with other internal corporate functions and group operating companies, or business units, will be determined by its departmental structure. Local regulation, too, will affect how different group entities can interact, especially on a cross-border basis. Departmental structure is the focus of Chapter 3 of this Handbook.
Externally, treasury has to interact with a range of third-party organisations, within a regulatory framework set by a number of legislators and regulators. Understanding both the nature of the organisations with which treasury must interact and the rules under which those interactions are controlled is critical to achieving an efficient treasury operation.
1. INTRODUCTION: HOW CORPORATE TREASURY INTERACTS
2. TREASURY DEPARTMENT RESPONSIBILITIES
In many organisations, the role and influence of the treasury department has increased in recent years. Improvements in treasury technology, globalisation and the evolving regulatory environment have afforded treasurers the opportunity to play a much wider role in their organisations, from greater involvement in strategic planning to the exercise of more operational control over group-wide treasury activity across multiple jurisdictions.
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Group finance;
Accounts payable;
Accounts receivable;
Procurement and supply chain;
Sales;
Legal, tax and accounting;
Financial planning and analysis (FP&A);
Risk management;
Internal audit;
IT.
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3
A. Internal Treasury Counterparts
To be as effective as possible, treasury needs to interact with a range of internal counterparts (in addition to the external counterparts outlined in Chapter 2), including:
4
Chapter 4
Liquidity Management
The previous chapter outlined how corporate treasury departments interact with third parties, including banks, payment service providers, asset managers and institutional investors. It also discussed how legislation and regulation affect the choices treasurers have when determining departmental strategy and policy.
This chapter focuses on the role corporate treasury plays within its own organisation, by discussing the different structures treasurers can adopt in order to manage both its own operations and its relationships with internal and external third parties.
1. INTRODUCTION: CORPORATE TREASURY IN THE BUSINESS
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management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely. Accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely.
In most organisations, there are three core operational timelines that result in cash flows. Understanding the implications of these timelines is central to a company’s ability to manage its working capital efficiently.
The three timelines are:
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1. INTRODUCTION
5
Chapter 5
Short-term Investment
Managing liquidity is core to the treasury department’s role within the business. Efficient use of cash ensures the company can meet its obligations to lenders, suppliers and governments, without becoming over-reliant on external sources of finance.
To be able to manage cash efficiently, treasury practitioners need to have a detailed knowledge of the way cash flows through their business. Understanding cash flow helps the practitioner anticipate borrowing requirements and helps to ensure cash is in place at the right time to meet corporate obligations. This also helps central treasury and corporate management demonstrate control over group activities.
Treasurers will want to maximise their visibility of group cash. Improvements in both corporate treasury and bank technology mean it is now much easier for treasury practitioners to obtain real-time information on activity across bank accounts located around the world. This applies whether accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity
1. INTRODUCTION
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A. Categorising, or Segmenting, Cash
Having a clear understanding of corporate cash positions is essential if a company is to manage cash effectively. Only by having accurate data on the amounts of surplus cash available to invest and the expected future cash requirements can a treasurer really understand how best to place cash and, critically, the degree of risk to principal and liquidity the company can tolerate. For companies with significant amounts of cash, it is helpful to be able to stratify this cash into different ‘buckets’, with each bucket representing a different tolerance for risk. Each bucket can then be invested in instruments which reflect that tolerance.
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1. INTRODUCTION
6
Chapter 6
Short-term Borrowing
ny company with surplus cash to invest has to place that cash somewhere. Even a decision to keep cash in bank accounts held with the company’s cash management bank is an investment decision. This might be appropriate for companies with limited cash balances. However, once a company has significant volumes of surplus cash, the treasurer will need to be more proactive to ensure the security of this cash.
Developing a clear investment policy helps the treasury practitioner consider the objectives when investing cash before setting parameters designed to meet them. Treasurers in regional treasury centres or local business units will usually be required to adopt the group liquidity management policy. The group liquidity management policy will determine how any surplus cash is used, such as whether cash is pooled and, if so, where cash is concentrated to. Any surplus cash, whether in a cash pool or in a non-pooled account, will be managed in line with the group short-term investment policy.
A short-term investment policy should set out the company’s approach to the following issues:
1. INTRODUCTION
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Commission (under the terms of the 1940 Investment Company Act). Regulations also usually prevent commercial paper being marketed to retail investors. This is generally done by setting a relatively high minimum denomination for issued paper (often USD 100,000, or the foreign currency equivalent), or by explicitly limiting issuance to institutional investors. This also has the effect of pricing small and medium-sized enterprises out of the commercial paper market.
Borrowers can issue commercial paper for any maturity up to the maximum permitted in the relevant jurisdiction. Paper is usually issued at a discount to the face value, with the paper being a commitment by the issuer to pay the holder the face value on maturity. Although many investors choose to hold commercial paper to maturity, it can be sold in the secondary market, meaning that the identity of the holder may change during the paper’s issuance. Many companies that use commercial paper as a source of working capital will seek to repay holders.
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7
Chapter 7
Bank Relationship Management
There are a number of different borrowing vehicles available to corporate treasury practitioners. Not all types of funding are suitable for all borrowers. Some borrowers rely on one type, whereas others use a combination of techniques as part of a robust funding strategy designed to ensure liquidity at minimum cost. Borrowing can be arranged in three main ways: from the money and capital markets, from commercial sources, and from banks.
Short-term funding is primarily available via the issue of commercial paper. It is also possible to issue short-term bonds, either on a standalone basis or as part of a wider MTN (medium-term note) programme.
A. Commercial Paper (CP)
Commercial paper is issued by companies and other issuers, usually in the form of unregistered promissory notes. Regulations in the jurisdiction in which the paper is issued usually determine its maximum maturity. These regulations usually cover the security registration requirements of the local regulator. For example, in the USA, securities with a maturity over 270 days have to be registered with the Securities and Exchange
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requirements for particular fields in standard message formats, making it more complex to integrate data feeds from different institutions onto the same platform. At the same time, each bank needs to be appropriately compensated for the services it provides. Over time, this changes as certain activities become commoditised, reducing the bank’s ability to charge a margin; as an example, payment processing is no longer as remunerative for a bank as it once was.
Given this, a treasury practitioner might consider minimising the number of bank relationships. Certainly, one bank may be sufficient for most small organisations or for larger ones with a simple group structure. However, any company with a degree of complexity, especially from an international presence, or which grows beyond a particular size, will need to consider having more than one bank relationship.
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8
Chapter 8
Financial Risk Management
Any company with surplus cash to invest has to place that cash somewhere. Even a decision to keep cash in bank accounts held with the company’s cash management bank is an investment decision. This might be appropriate for companies with limited cash balances. However, once a company has significant volumes of surplus cash, the treasurer will need to be more proactive to ensure the security of this cash.
Developing a clear investment policy helps the treasury practitioner consider the objectives when investing cash before setting parameters designed to meet them. Treasurers in regional treasury centres or local business units will usually be required to adopt the group liquidity management policy. The group liquidity management policy will determine how any surplus cash is used, such as whether cash is pooled and, if so, where cash is concentrated to. Any surplus cash, whether in a cash pool or in a non-pooled account, will be managed in line with the group short-term investment policy.
A short-term investment policy should set out the company’s approach to the following issues:
1. INTRODUCTION
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crucially, communicating the purpose of any risk management policy, it is unlikely to be successful.
Setting the objectives of a risk management policy is a strategic, rather than a tactical, issue; a decision to expand into a new territory, for example, is a good example of a strategic decision exposing a company to foreign exchange risk. For this reason, the objectives should be agreed at board level; the board is responsible for determining the company’s attitude to risk. The treasurer’s role at this point should be to present a set of alternative approaches to managing foreign exchange and interest rate risk (perhaps as part of a wider presentation of financial risks) and to highlight the implications of the alternative approaches. Showing how different approaches can affect earnings or balance sheet volatility, for example, can help the board visualise its attitude to risk and form a decision.
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9
Chapter 9
Treasury Technology
Of all external partnerships, a good set of global banking relationships is probably the most important contributor to an effective treasury department. Achieving and maintaining them is also probably one of the hardest of the treasurer’s tasks. Fundamentally, there is an underlying tension between having a wide enough banking group to provide all the services required and a small enough number of banks that can be managed efficiently and rewarded appropriately.
Managing bank relationships is time-consuming; an effective bank relationship develops through the sharing of information and the achievement of efficient solutions to a company’s challenges. For an organisation with multiple bank relationships, much of the relationship management cannot be scaled – managing four bank relationships takes broadly four times longer than managing one.
Managing multiple bank relationships is also complex. Despite moves towards standardisation, there remain significant differences between the ways banks perform key tasks. This complicates the introduction of streamlined approaches to managing treasury activities. As an example, banks have a tendency to add their own requirements for particular fields in standard message formats,
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Treasurers use technology in a variety of different ways during the course of each day. They rely on banks to provide transaction and balance information and, in most cases, to execute a range of transactions from salary payments to automated overnight sweeps. Treasurers also use technology to record their operational activity and to support strategic and tactical decision-making. The technology used in the treasury department varies from standard spreadsheet applications to enterprise resource planning (ERP) systems, treasury management systems (TMS) and specialist treasury software that supports a particular activity.
Technology plays an important role in treasury in two, interrelated, ways:
Ever improving functionality allows treasurers to expand their visibility over, and therefore their control of, a much wider range of activities within their organisations. As shown in this chapter, treasurers are involved across the full extent of working capital management, supporting the activities of business units in both accounts payable and receivable. Having earlier, and more accurate, forecasts of cash positions allows the treasurer to plan short-term and longer-term borrowings and investments more effectively, reducing costs for the business.
Improved workflow functionality enables much of the mundane daily operational activity to be automated. Treasury technology can embed a range of controls that ensure that, for example, certain positions are hedged and others trigger a requirement for an individual to take action to monitor and manage. Within an automated workflow, most activity is managed without the need for manual intervention. This means the treasury team focuses on exceptions only, with the result that increased time becomes available for treasurers to consider strategic decisions and to work on broader projects. Treasurers are increasingly seen supporting the board in the adoption of more sophisticated enterprise risk management strategies and working with other operational areas to identify ways to improve efficiency in the financial supply chain.
Ever improving functionality allows treasurers to expand their visibility over, and therefore their control of, a much wider range of activities within their organisations. As shown in this chapter, treasurers are involved across the full extent of working capital management, supporting the activities of business units in both accounts payable and receivable. Having earlier, and more accurate, forecasts of cash positions allows the treasurer to plan short-term and longer-term borrowings and investments more
•
10
Chapter 10
Treasury Controls
Any company with surplus cash to invest has to place that cash somewhere. Even a decision to keep cash in bank accounts held with the company’s cash management bank is an investment decision. This might be appropriate for companies with limited cash balances. However, once a company has significant volumes of surplus cash, the treasurer will need to be more proactive to ensure the security of this cash.
Developing a clear investment policy helps the treasury practitioner consider the objectives when investing cash before setting parameters designed to meet them. Treasurers in regional treasury centres or local business units will usually be required to adopt the group liquidity management policy. The group liquidity management policy will determine how any surplus cash is used, such as whether cash is pooled and, if so, where cash is concentrated to. Any surplus cash, whether in a cash pool or in a non-pooled account, will be managed in line with the group short-term investment policy.
A short-term investment policy should set out the company’s approach to the following issues:
1. INTRODUCTION
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the board will approve the treasury policy, they will usually delegate the authority to develop procedures and controls to the treasury department.
To manage risk. All companies, however large or complex, need a clear set of operating procedures and controls to help to minimise the exposure to operational risk.
To achieve compliance with relevant regulatory and legal requirements.
Download the Handbook
read less
Treasury departments adopt treasury policies and procedures to help them manage cash and financial risk. There are four principal reasons why treasury policies and procedures are necessary: accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely.
However, there are many operational risks that may prevent the adopt policies and procedures working as expected. This chapter identifies treasury operational risks and explains how treasurers can manage them.
•
•
•
•
11
Chapter 11
Merger & Acquisition for a Regional Treasury Centre
Treasury departments adopt treasury policies and procedures to help them manage cash and financial risk. There are four principal reasons why treasury policies and procedures are necessary: accounts are held with the same bank in one currency or across multiple banks in multiple currencies. Together with an effective cash forecasting system and a streamlined liquidity management structure, accurate visibility over cash will help treasurers to manage payments and internal liquidity in order to reduce reliance on external borrowing and ensure any surplus cash is invested safely.
1. INTRODUCTION
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The initial, pre-agreement phase, during which time the transaction is under consideration;
The pre-completion phase, during which time the company has to prepare to both complete the transaction and be able to assume control of the new entity (or for the to-be-divested unit to prepare for independence); and
The post-completion period, which involves the ongoing operation of the changed company.
•
•
•
A. Pre-agreement
The focus of the pre-agreement phase is to establish whether a potential transaction fits the company’s strategic objectives. During this phase, the primary objective is to identify whether the proposed transaction makes economic sense.
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1. INTRODUCTION
12
Chapter 12
Treasury 2025
Treasurers are generally responsible for managing financial risk. This will include foreign exchange and interest rate risk, as well as, in some companies, commodity price risk. Each company should have a financial risk management policy that reflects its broader appetite for risk. This will usually be supported by a series of operating procedures designed to implement each section of the financial risk policy.
There are three stages to setting a risk management policy: the identification of the policy objectives, the determination of the extent to which exposures should be actively managed, and the tools permitted to be used to manage these exposures. These are examined in turn and focus on managing foreign exchange and interest rate risk.
A. Objectives of Financial Risk Management Policy
Whether reviewing an existing policy or implementing one for the first time, the company must agree its risk management objectives. Without understanding and,
1. SETTING A FINANCIAL RISK MANAGEMENT POLICY
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maturities – overnight/spot/next, one week, one month, two months, three months, six months, and 12 months). Over the coming years, LIBOR (and other interbank offered rates) will be replaced by a series of different risk-free rates, a process that will have major implications for corporate treasurers. Offered rates, such as LIBOR, are widely used in intercompany loans, as well as for external investing and borrowing. Treasurers need to understand the implications of the transition away from LIBOR in two key respects: what replaces LIBOR and how the different methods of calculating the replacement rates will affect the way treasurers should use the replacement rates.
A. Why LIBOR is Being Replaced
LIBOR is being replaced for two inter-related reasons, both of which have resulted in a lack of confidence in the integrity of IBOR calculation rates.
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1. INTRODUCTION
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*All 15 country profiles are contained in the full handbook.
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*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.
*All 15 country profiles are contained in the full handbook.