Finance Case Study: PWC Treasury Broadsheet Risk Management Analysis

This case study analyzes three PWC Treasury Broadsheets (2017-2019), focusing on risk management within the finance sector. The report begins with an executive summary outlining the key areas of analysis, including corporate bond markets, foreign exchange exposure, and liquidity. The discussion section provides a detailed overview of the author's assertions and observations from each broadsheet, including the increasing demand for corporate bonds, the importance of foreign exchange risk management, and the need for effective liquidity and working capital management. The analysis identifies the areas of treasury risk discussed in the articles, such as corporate bond market volatility, foreign exchange rate fluctuations, and liquidity challenges. The study also examines how the author's comments could influence a treasurer's risk management strategy, emphasizing the importance of developing a policy framework, employing hedging instruments, and forecasting future exposures. Finally, the report offers a critical evaluation of the author's assertions, providing reasoned arguments to support or challenge the observations made. The case study concludes by summarizing the key findings and reiterating the importance of sound risk management practices in the current financial landscape. The assignment covers key aspects like corporate bond market, foreign exchange risk, and liquidity management, and the role of the author's comments in shaping risk management strategies, making it a comprehensive overview of treasury risk management.

Running head: Finance
Finance
Name of the Student
Name of the university
Author’s note

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Executive summary
The report is focused to risk management procedure where the overall treasury broadsheet is
produced in order to analyze risk management structure of the economy. The demand of the
economy been stated clearly, asset allocation has been figured clearly in the context.
Summarizing the key objectives of the reports of PWC done clearly, the author has performed
sensitivity analysis and foreign exposure of the economy has been stated. Profit and loss
statement and balance sheet stated in order to understand the profitability of the company. The
author has analyzed area of risk perfectly; hedging is the focus of the report in 2018 as investor’s
protection was the main criteria of the company. Author’s comment was involved in the report
over the whole scenario. Reasons provided to the context of the report on judgmental analysis.
The risk exposure in the economy due to improper hedging has been analyzed and proper steps
are justified in the report.
It can be concluded from the above topic that the report involves correct theories on risk
management.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
1. Key assertions and observation of author................................................................................4
2. Areas of treasury risk the articles relate..................................................................................9
3. Author’s comments influencing treasury risk management..................................................10
4. Reason behind author’s assertions.........................................................................................11
Conclusion.....................................................................................................................................12
Reference list.................................................................................................................................13

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Introduction
Risk management is a process of identification, analysis and mitigation of different certainty in
investment decision. It is the process when the investor or fund manager analyses and attempts to
qualify the potential of losses in investment. The report focuses on summarizing the key
objectives and assertions of the author depicting on the three PWC Treasury broadsheets from
2017 to 2019. The main areas include corporate bond market window, risk sensitivity analysis,
fixed income security bonds, foreign exchange exposure and others. Long term foreign exchange
hedging is described effectively. Liquidity of the economy stated in accordance to the central
bank rules. Analysis of areas consisting treasury risk described efficiently. Reason why does
treasury risk management influence author’s comments discussed logically with representing
current scenario. Statements based on authors assertion and observations are described
efficiently.
Discussion
1. Key assertions and observation of author
2017 PWC treasury broadsheet
According to (Pwc.co.nz, 2019), the author focuses on corporate bond market window,
which gives an idea about the yield return of the investors. The demands of bonds are increasing
continuingly, as most of the fund managers prefer to allocate funds away from the potentially
over-hyped assets (Chatterjee, 2018). Author stated that fixed income security bonds gives

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higher returns than over-hyped assets. New corporate bonds are issuing in the debt corporate
markets. The investor demand in the market is strong as borrowers are advised to issue corporate
bonds during the market window are open. The bank facility of the nation is flexible enough
during this time, period to cancel out transactions without charging penalties from the borrower.
The author has expressed disappointment as because the corporate borrowers of New Zealand
did not took advantage from the conducive market condition, which had high possibility of
yielding higher return. The corporate bond volumes saw a dip in 2017. This was the lowest value
of this bond comparing from the previous years. The main reason behind this poor performance
is, there was less number of borrowers in the market. If the demand in the market is high but
suppliers are less available, the demand graph moves down. This is what happened in this
scenario, market condition was purely coherent in nature but borrower’s did not had the courage
to invest in the market due to past volatility effect. Lesser number of participants in the market,
which had lower insurance margin, caused the overall downfall of the borrowers.
Author discussed about foreign exchange risk management for the beginners association
in the stock market. Risk and sensitivity analysis is an important context in terms of the users in
market. Exposure of foreign exchange is very much important to understand, including analysis
on cash flow riskiness (Darnall, Ji & Vázquez-Brust, 2018). In context with degree of foreign
exposure, exposure receipts are important to understand as well repatriation of overseas profits.
Company profitability is equally important to assess.
Natural occurring offsets are necessary to understand. The organization might take
decisions to go for hedging to minimize its risk of exposure in the market (Bai, Bali & Wen,
2019). They have to pick up a different offset to manage risks of foreign exchange movements.
According to the author, it is important to develop a policy framework in order to manage

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foreign exchange risks of the organization. Percentage of exposure is required to measure; the
maximum and minimum limits needed to analyze. Best hedging instruments are required to
assess and imply the parameters required to use. Forecasting future exposures should intend to
analyze on the amounts of expected foreign currencies receipts and payments over the next 1
year or more (Bai, Krishnamurthy & Weymuller, 2018). To analyze the process it is required to
undertake combination of sales, procurement and finance functions to evaluate. Risk
management strategy is important to understand on the expected exchange rate level in
international market (Kilic & Wachter, 2018).. It is also required to understand whether the
company has sufficient protection to combat with the foreign exchange rate.
Cash flow forecasting has discussed by the author where, global treasury benchmark
survey has completed by PWC on the issue of cash flow forecasting in the recent times of global
implications (Ang, 2018). Cash flow forecasting has been the top priority for corporate
treasurers; accurate forecasting requited in the business for decision making progress. Liquidity,
debt funding, planning and corporate structure is essential to calculate the key areas in the
organization. Author discusses about expectation for optimal transactional banking system. It
gives benefit by providing real time access to cash account balances, visibility of balances. It is
useful to the context of real time expense management system, which reduces administration cost
and reconciliation time amount (Froot, 2019). It formulates ERP system, which provides
efficiencies and reduces risks of error and fraud. It also increases connectivity operations by
focusing on cloud-based solutions.
According to (Eyal & Sirer, 2018), impact on digital currencies discussed by author in
relation to Bit coin, block chain and crypto currency to benefit day-to-day activities of different
users, it emerged from the underground optimization to become a household buzz (Kumhof &

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Noone, 2018). According to the report of PWC, bit coin is the most rapid grown global payment
system. Overtaking well-known companies like PayPal, Tesla, General motors and Sony. The
author mainly focuses on the ability of online payment system developed during the time of
2017, which helped the life smoother for every common person.
2018 Treasury Broadsheet
Author focuses on viability of long term foreign exchange hedging, whether it is
speculative or it is strategic. Foreign exchange is always strategic, if it is composed in a perfect
structure. Firstly, it is important to analyze the market trend and implement the perfect template
to hedge the exposure (Tenhiälä, Rungtusanatham & Miller, 2018). The worthiness of hedging
speculative is to maintain gross business margin effectively. It is based on strategic and
economic basis and must have coherent capital structure. It tends to incur hedging off P&L
statement and balance sheet due to international currency exposure. In case of leading and
lagging, when a country which has lower economy has to pay balances to the higher economy
then the lower economy tends to lead the payment because if the higher economy suddenly rises
more higher, it would be difficult for them to pay more. Leading is the process when a country is
not that much sound financially; tends to close the payment as earlier as possible, in case the
economy goes higher; weaker currency will incur losses. Lagging is the case when strong
currencies lag the payment to weaker currencies.
The author mentioned the benefits of RFP process. It is the strategy, which highlights
request for information process. It is the process formalizing and adding structure after having
the discussion with the third-party providers. It helps to understand the tender’s objectives and

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manufacturing good quality of goods and services. It articulates speedy performances and
inherits better quality responses.
The author in the article describes understanding and proper using of volatility, it is the
process, which either can be overstated or misunderstood concept. Markets sometimes refer as
volatile. The users use implied option volatility in order to enhance hedging instruments. Options
are availed by many users in order to minimizing risk from international exposure (Cravero et al.
2019). It also offers flexibility in portfolio of the company in terms of hedging. Options are
useful in protecting against unfavorable conditions, suppose downfall in the stock market. It even
helps to reduce the opportunity cost and enables better range of outcomes in the market.
2019 treasury broadsheet
The present report suggests that directors need to understand liquidity and working
capital management. It is the issue where the directors do not understand the best option to
maintain liquidity of the company and how to manage the working capital of the organization to
earn benefits of cash inflows. It even shows accuracy level of decision making of the directors of
the company and on time board reporting. Liquidity management in terms of company resources
is the process helps to access the liquidity assets of the company and steps to manage. It also
evaluates debt facilities of the association and managing the process effectively by the finance
team of the company. As per the author, the company uses three types of methodologies; fixed
rate percentage- it measures liquidity as percentage of projected debt amounts. Fixed rate
amount- Here the company held to cover unexpected capital cost and operational cost, it is an
unknown expense of the company, which they are not aware. Lastly, contractual cost is the

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variation, which accumulates different types of contractual cost. It includes wages, lease payable
and taxes. Contractual cost is the approach is the technique, which used by different companies,
which is growing strongly and it has a large amount of variable cost. The industry and risk
profile of a company is the primary driver of the organization. Liquidity threshold of the
company is limited and then balance of the strength and financial viability of cash flows are
estimated. Bank of New Zealand discuses capital requirements of them, and evaluate impact on
business and treasurers. Author discussed that the bank made their comparative benchmark
analysis while focusing on the rise in tier 1 Capital to 16% in order to protect against an event
risk.
RNBZ facilitated some proposals, which includes more retained earnings by reducing the
dividend yields. They even declared to raise fresh equity stocks through the Australian parent
company. Reducing credit growth of the company, they also decided to squeeze costs from
different sectors of their parents. Corporate banks maintain lending rates, which range between
40 basis points and 60 basis points. The capital, which implemented by the company are shown
as invested amounts (Power, 2018). Impact of economy by this affects as strong competition in
the banking sector, as a result extent of cost increases. Increasing in domestic cost funds of banks
leads to increment in attraction of corporates by issuing retail bonds issue. According to the merit
of the bond, wholesale investor incurs higher returns. Budgetary flexibility is issued in areas of
assessment by contributing 10-20% of the overall weightage in the institutional framework. It is
the framework, which measures budgetary flexibility performance, qualitative adjustments made
in accordance to positive or negative changes of the values. Impact of changes in budgetary
figures encourages the possible changes in the respective organization. LIBOR reform is
encouraged to change in accordance to the impact of the economy. Debt management- external

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focuses on the existing facilities provided also transfer pricing also arise in context to
intercompany funding. Interest rate management is focused transition provision into basis risk.
Cross currency, the exchange parties use instruments by referencing two floating rates.
Centralized treasury management accumulates consolidate treasury services and units. Business
centralizes and performs complete centralization on spectrum. Business also involves complete
independent business units, which enables the organization to sustain uniquely.
2. Areas of treasury risk the articles relate
In 2019 treasury report, it is stated that directors are needed to understand the concept of
liquidity. Treasury risk is associated with liquidation concept of the economy (Ippolito, Ozdagli
& Perez-Orive, 2018). Strong focus shall be made on solvency factors, depending on the
situation of creditors. It is a challenging task for the directors to deal with this situation. The risk
is related to working capital management as well as liquidity management. LIBOR reform is one
of the key risk in this context, debt management is going to be invalid in future times due to
current reference rates. There are complications in operations task. Supply chain, revenue and
contracts are going to be assessed for review. Changes in reference rates involve accounting and
tax consequences (Sari, Amboningtyas & Gagah, 2019). Treasury risk in 2018 report involves
foreign exchange hedging. There are high possible chances when people can be exposed due to
improper hedging in the market. When the people are taking improper parameters while hedging,
then they might lose money. Volatility shall use properly in context to this situation. When users
do not avail option contracts then it becomes quite difficult to sustain in the market while
investors incur loses, the market affects badly. Hence, it is considered as one of the key treasury
risk.

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Treasury risk in 2017 determines that corporate bond issue has dropped form the last few
years. It happened due to long-term debt in lower issue margins. The important reason behind
this is overall banking lending is different. Challenges in cash flow forecasting are also a risk
involved in the process.
3. Author’s comments influencing treasury risk management
Author delivered that foreign exchanging hedging is a key strategy for appraisal of
economic turbulence. Option strategy considered the best solution of risk management. Treasury
risk management considered influencing by focusing on different segments of option strategy.
Covered call advised to execute by purchasing the underlying stock and then selling it off on the
same shares. This generates modest income and reduces risk of the portfolio. Married put
strategy considered to use by the investors because when an investor purchases an asset and then
simultaneously purchases put options for equal number of shares (Berger, Zhang & Zhao, 2018).
The holder of the shares has got right to sell stocks at any time at the strike price. Investor prefers
to utilize this stock because it helps to protect the downward risk of them.
The investors use Bull call spread because investor purchases call option at a strike price
and simultaneously sell off the stock at a higher price. This usually helps to limit the loss of the
investors. Bear put spread is the process where investors purchases put options and then sell off
the equal number of puts at a lower strike price (Bai, Bali & Wen, 2019). It helps to limit both
the losses as well as the gains. Trade off in this function is a bearish strategy. In a bear put
strategy, the upside is limited and the premium is reduced. Protective collar is the process where
an out-of-the-money out option purchased and on the other hand, the investor can write off the
same underlying asset. It is the strategy, which is availed by the investors when long position in a
stock has, underwent substantial gains. Long straddle is the process, which used by the investors

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in case the investor purchases an out-of-the-call option and out-of-the-money at the same time,
same underlying asset and equal expiration date (Glinberg et al. 2019). The unique thing about
this strategy is the losses are limited to the costs for both of the options.
4. Reason behind author’s assertions
Author’s assertion is correct in different aspects. He made analysis on preference on
using liquidity of the company, different banks in New Zealand is facing shortage in liquidity.
They are focusing more on disbursing of loans (Su, 2018). The directors of both the public as
well as private companies are missing out the point of liquidity. He also claimed that the
directors are also ignoring working capital management, which is leading to high costing of
materials of the company (Froot, 2019). It is convincing in the scenario where, he is measuring
on three methodologies. Namely, fixed percentage methodology and fixed amount methodology.
He also focused on contractual cost. Author has critically assessed all the conditions very
effectively. He discussed about different proposals, which implemented by the banks and
changed the complete scenario. The author states impact of economy, where he states that
banking sector might get a shocking impact but the lending margins will be quite attractive in
nature. The most critical analysis he made is on foreign exchange analysis. The impacts of
foreign exchange are provided upon natural effects in stock market. Hedging strategy been
described with the pros and cons in it, the overall impact of losses been stated. Volatility of the
market and appropriate usage of it with proper understanding been practiced by the investors in
the market. The author to identify the risk upholds proper understanding of volatility and
diversification of portfolio will be enough to minimize the risk. Hedging instruments are
highlighted by author in order to maximize the profit and reduce the risk by diversified portfolio
with less volatile and high volatile stocks (Wang et al. 2018).

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Conclusion
It can be concluded from the above topic that the author has effectively analyzed the
different scenario, which is summarized in the article. It focuses on the risk management
mentioned in the broadsheets of PWC from 2017-2019. The assertions were on natural corporate
bond market and about opening of the window in occurrence to transfer market. Hedging
concept is effectively discussed in order to sustain in the market. The framework of the hedging
structure is useful to maintain for the investors who tends to incur losses in the market. The
steps, which explained, are important to maintain in order to minimize losses. The impact in
business and treasuries are analyzed where the lending rates published by the banks to facilitate
the investors have been discussed effectively. Impact on economy has been stated to give
feedback to the clients in order to invest in lesser volatile stocks. LIBOR reforms of the economy
are set in order to maintain benchmark of the organization thoroughly.

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