Treasury Management: Functions, Procedures, and Economic Impact

This report provides a comprehensive overview of treasury management, detailing its core functions such as corporate finance, cash management, funding management, foreign currency management, risk management, and insurance. It explores cash handling procedures, including controlling cash receipts from sales and mail, emphasizing the importance of internal controls and separation of duties to prevent fraud and ensure security. The report also outlines general security measures for handling and storing cash, including the use of cheques, frequent banking, and secure storage practices. Furthermore, it discusses the impact of economic and financial factors like interest rates, exchange rates, taxation, and inflation on cash management decisions. The report also includes important terms such as portfolios, building societies, financial securities, treasury bills, gilts, bank bills, corporate bonds, commercial papers, local authority bills and bonds, and certificates of deposit. Overall, the report offers a valuable resource for understanding the multifaceted aspects of treasury management and its practical applications within an organization.

Treasury Management

➢ I N T R O D U C T I O N
➢ B A S I C T R E A S U R Y F U N C T I O N
➢ C A S H H A N D L I G P R O C E D U R E
➢ O U T L I N E A N D G U I D E L I N E S A N D L E G I S L A T I O N I N R E L A T I O
M A N A G E M E N T O F C A S H B A L A N C E S I N P U B L I C S E C T O R O R
➢ E F F E C T O F E C O N O M I C A N D F I N A N C I A L E N V O I R M E N T O N
M A N A G E M E N T O F C A S H P L A C E S
Areas to be covered:

T R E A S U R Y F U N C T I O N S
T r e a s u r y f u n c t i o n e n s u r e st h a t t h e o r g a n i s a t i o n h a ss u f f i c i e n tc a p i t a l
t o f u n d i t s o p e r a t i o n sa n d p l a c e a n y e x c e s sm o n e yi n t ov i a b l e
i n v e s t m e n to p t i o n s .I t i n c l u d e s m a n a g i n g t h e c a s hf l o w ,a r r a n g i n g
w o r k i n g c a p i t a l , a r r a n g i n gf u n d s f o r t h e l o w e s t p o s s i b l ec o s t ,
i d e n t i f y i n g t h e o p t i m u m c a s h b a l a n c e ,i n v e s t i n g s u r p l u sc a s h i n t h e
m o s t s e n s i b l em a n n e r .I t d e a l s w i t h h o w t o m a k e b e s t u s e o f t h e
a v a i l a b l e f u n d s t o m a x i m i s et h e o r g a n i s a t i o n ’ sw e a l t h . I f t h i s
f u n c t i o ni s n o t c a r r i e do u t e f f e c t i v e l yi t w i l l c a u s e l o s s e st o t h e
e n t i t ya n d m a y n e g a t e a l l t h e e f f o r t sm a d e b y t h e o r g a n i s a t i o nt o
m a k e p r o f i t .
R o l e sO f T h e T r e a s u r y F u n c t i o n :
1 .C o r p o r a t ef i n a n c e :T h e f i n a n c i a lo b j e c t i v eo f a c o m p a n y i s t o
m a x i m i s e i t sv a l u e t o i t ss h a r e h o l d e r s .
2 .L i a i s o nw i t hb a n k s :T h e t r e a s u r yd e p a r t m e n ti n t e r a c t sw i t h t h e
c o m p a n y ’ sb a n k e r sa n d e n s u r e st h a t t h e r e l a t i o n s h i p t h e c o m p a n y
h a s w i t h i t sb a n k e r si s f a v o r a b l e .
3 .C a s h m a n a g e m e n t :T h e o b j e c t i v e o ft h e t r e a s u r yd e p a r t m e n ti s t o
e n s u r e t h e c o m p a n y ' sf i n a n c i a ls t a b i l i t y a n d s o l v e n c y .

4 . F u n d i n gm a n a g e m e n t :T h e t r e a s u r yd e p a r t m e n tt r i e st o a r r a n g e
f u n d s t o f u l f i l lt h e c o m p a n y ’ sr e q u i r e m e n t s ,f r o m t h e c h e a p e s t
s o u r c e o ff i n a n c e .
5 . F o r e i g n c u r r e n c y m a n a g e m e n t :A n e x c h a n g e r a t e r i s ka r i s e sw h e n
t h e c o s to r s a l e p r i c e o ft h e g o o d i sl i k e l y t o c h a n g e b e c a u s e o fa
c h a n g e i n e x c h a n g er a t e s .I t i s t h e d u t y o f t h e t r e a s u r y
d e p a r t m e n tt o m i t i g a t e o rm i n i m i z e t h e f o r e i g n c u r r e n c y r i s kf a c e d
b y a n o r g a n i s a t i o n .
6 . R i s km a n a g e m e n t :A n o r g a n i s a t i o na v a i l so p p o r t u n i t yt o k e e p i t s
e x c e s sc a s h f o r a c e r t a i n t i m e p e r i o d .A t t h e e n d o f p e r i o d ,t h e
o r g a n i s a t i o na b l e t o t a k e b a c k i t s c a s h a n d i n t e r e s t . I n t e r e s t
r e p r e s e n t sa n a d d i t i o n a la m o u n to f m o n e y t h e o r g a n i s a t i o n i sp a i d
b y t h e e x t e r n a lp a r t yf o r k e e p i n g i t sc a s h f o r t h e s t i p u l a t e d t i m e
p e r i o d . T h e w o r d s h o u l d i s u s e d h e r e b e c a u s e a l l i n v e s t m e n t
o p t i o n sc o m e w i t h a c e r t a i n a m o u n to f r i s k( i . e .t h e p o s s i b i l i t y t h a t
t h e i rf u n d sw i l ln o t b e r e t u r n e d t o t h e m ) .
7 . I n s u r a n c e :A c o m p a n y f a c i n g i n t e r e s ta n d f o r e i g nc u r r e n c yr i s k
n e e d s t o i n s u r ei t s e l fa g a i n s t l o s s e s .T h e t r e a s u r yd e p a r t m e n t
d e v i s e sv a r i o u ss t r a t e g i e st o m i t i g a t e ,m i n i m i z eo r e l i m i n a t et h e
v a r i o u sf i n a n c i a lr i s k sf a c e d b y a n o r g a n i s a t i o n .

C A S H H A N D L I N G P R O C E D U R E S
C a s h h a n d l i n g i n c l u d e st h e r e c e i p t ,s t o r a g e ,p a y m e n ta n d b a n k i n g o f
a n o r g a n i s a t i o n ’ sc a s h . O r g a n i s a t i o nm a n a g e m e n ti s r e s p o n s i b l et o
e s t a b l i s hs u f f i c i e n ta n d a p p r o p r i a t ei n t e r n a lc o n t r o l s y s t e m t o
p r e v e n tt h e i n c o r r e c tr e c o r d i n g ,m i s u s e a n d l o s so r t h e f to f t h e c a s h .
B u s i n e s s e s n o r m a l l y r e c e i v e i n c o m e f r o m t w o m a i n s o u r
1 . c a s h r e c e i p t s f r o m c u s t o m e r s
2 . c h e q u e r e c e i p t s f r o m c u s t o m e r s
1 . C o n t r o l l i n g c a s h r e c e i v e d f r o m c a s h s a l e s :R e g a r d l e s so f t h e s o u r c e
o f c a s h r e c e i p t s ,e v e r y b u s i n e s sm u s tp r o p e r l y s a f e g u a r d a n d r e c o r d
i t sc a s h r e c e i p t s .O n e o f t h e m o s ti m p o r t a n tc o n t r o l st o p r o t e c tc a s h
r e c e i v e d f r o m o v e r - t h e - c o u n t e rs a l e si s a c a s h r e g i s t e r .W h e n a c l e r k
( c a s h i e r )e n t e r st h e d e t a i l so f s a l e sl i k e i n v o i c e n u m b e ra n d n a m e o f
a c u s t o m e r ,t h e c a s h r e g i s t e rd i s p l a y st h e a m o u n t .
2 . C o n t r o l l i n g c a s h r e c e i v e d i n t h e m a i l :M o s t c o m p a n i e s ’i n v o i c e sa r e
d e s i g n e d s o t h a tc u s t o m e r sr e t u r na p o r t i o n o f t h e i n v o i c e ,c a l l e d
r e m i t t a n c e a d v i c e ,w i t h t h e i rp a y m e n t .T h e e m p l o y e e w h o o p e n st h e
i n c o m i n g m a i ls h o u l d i n i t i a l l y c o m p a r e t h e a m o u n to f c a s h r e c e i v e d
w i t h t h e a m o u n ts h o w n i n t h e r e m i t t a n c e a d v i c e .A l l c a s h r e c e i v e d
i n t h e m a i li s s e n tt o t h e C a s h i e r ’ sD e p a r t m e n t .

T h e s e p a r a t i o no f t h e d u t i e s :T h e s e p a r a t i o no f t h e d u t i e s o f t h e
C a s h i e r ’ sD e p a r t m e n t ,w h i c h h a n d l e s c a s h , a n d t h e A c c o u n t i n g
D e p a r t m e n t ,w h i c h r e c o r d sc a s h , i s a p r e v e n t i v ec o n t r o l .I f a n
e m p l o y e e o ft h e A c c o u n t i n g D e p a r t m e n tb o t h h a n d l e sa n d r e c o r d s
c a s h , h e c o u l d s t e a l c a s h a n d c h a n g e t h e a c c o u n t i n gr e c o r d st o
c o n c e a lt h e t h e f t .
O t h e r s e c u r i t y a s p e c t s o f h a n d l i n g a n d s t o r i n g m o
1 .G e n e r a l s e c u r i t y m e a s u r e s :
• E n c o u r a g e t h e u s e o f c h e q u e s , c r e d i t / d e b i t c a r d s o r t o k
• P a y w a g e s s t r a i g h t i n t o s t a f f b a n k a c c o u n t s o r b y c h e q u e
• E m p t y t i l l s , p a y p h o n e s a n d v e n d i n g m a c h i n e s f r e q u e n t l y .
• B a n k m o n e y f r e q u e n t l y .
• U s e d r o p - i n s a f e s a t o f f i c e s a n d c o u n t e r s o n l y f o r r e c e i p t
• G i v e s t a f fa d v a n c e sf o r p e t t y c a s h e x p e n s e s ,a n d p a y t h e m b y
c h e q u e w h e n t h e y m a k e a c l a i m ,t o a v o i d l a r g e a m o u n t so f
p e t t y c a s h o n s i t e .

2 . K e e p i n g c a s h o n s i t e :
• M a k e s u r e c a s h i sh e l d a s f a r a w a y f r o m e x i t sa s p o s s i b l e .
• F i th i g h - s p e c i f i c a t i o n l o c k so n d o o r st o r o o m sw h e r e c a s h i sh e l d .
• U s e a s a f e a n d f i x a n a l a r m .
• A v o i d k e e p i n g c a s h o v e r n i g h t .
• M a k e c a s h h a n d l i n ga s p r i v a t ea s p o s s i b l e ,a n d m a k e s u r e s t a f f
d o e s n ’ th a n d l e c a s h a l o n e .
• T h e p e r s o n K e e p i n g f i n a n c i a lr e c o r d ss h o u l d n o th a n d l e c a s h .
3 . M o v i n g c a s h a r o u n d :
• V a r y t h e r o u t e t o t h e b a n k a n d t h e d a y so f b a n k v i s i t s .
• U s e a t l e a s tt w o p e o p l e t o c a r r y c a s h .
• R e s t r i c ti n f o r m a t i o n a b o u tc a r r y i n g c a s h t o t h o s e d i r e c t l yi n v o l v e d .
P e o p l e w h o d e p o s i t c a s h i n t h e b a n k s h o u l d b e r o t a t e d a n d
i n f o r m a t i o na b o u t t h i s b a n k i n g o p e r a t i o n s h o u l d b e k e p t
c o n f i d e n t i a l .

Important Terms:
• Portfolios
• Building Society
• Financial Securities
• Treasury bills
• Gilts
• Bank bills
• Corporate Bonds
• Commercial Papers
• Local Authority Bills and Bonds
• Certificates of Deposit

Interest rates:Firms that borrow funds are obliged to pay interest on their debts which would
fall due within one year. Firms which invest surplus cash in instruments like treasury bills,gilts,
commercial papers, etc. would earn interest from such short term investments. Thus, a
change in the interest rates of borrowing or investing willhave a direct effect on the cash
management of a firm.
Exchange rates:Cash flows of organisations (anticipated future cash flows as wellas currently
contracted ones) involved in export / import trade or operations in internationalarena would
be affected by movements in exchange rates of the domestic country or of the other
trading nation. To gauge the impact of exchange rate changes on an enterprise’s cash
situation, its operating managers need to foresee the firm’s exposure to exchange rate risks.
Accordingly, the firm would have to maintain appropriate cash balances (in case a
downward movement of the domestic currency).
Level of taxation:The taxation level of the economy would affect cash management
decisions of firms.A higher tax rate would mean that firms would have to maintain higher
cash balances to fund the same. When tax rates go down, firms can hold lower amount of
cash (and employ the surplus amount in short term investments).
Inflation:Periods of inflation reduces the realvalue of money held by an organisation. Thus, the
organisation has to hold more cash in times of rising inflation since more funds would be
required now to service the short term obligations.