Ques : Describe Treasury Risk Management

Treasury risk management may be best defined as overseeing a company’s working capital, which includes making strategic plans on the best ways to keep the enterprise solvent. This involves monitoring funds to maintain liquidity, and lowering the organization’s financial and operational risks. A few of the main focus areas of treasury operations are as follows:

1) Cash Flow-Receipts and Disbursements: Accelerating the collection of cash receipts and mobilization/consolidation of cash, improving effectiveness of lockboxes; cheque clearing, credit card payments, wire transfer systems, and electronic commerce initiatives to optimize cash utilization. Design and operate effective and control oriented payment and disbursement systems.

2) Bank and Financial Institution Relations: Assess global banking and financial institutions relationships among themselves as well as with domestic ones and identify ways to maximize the value of these relationships. Enhance the value received from banking and financial products and implement more efficient processes and account structures to strengthen global cash and treasury risk management. Review capital structure and financing arrangements to maximize the utilization of financial resources and minimize their cost.

3) Cash Management Controls: Assess and improve controls to minimize exposure to fraud and other such risks. This also strengthens and supports internal control initiatives.

4) Cash Forecasting and Information Reporting: Improve the reliability, accuracy and timeliness of data from domestic and international cash forecasting models and processes; and improve the effectives of treasury information reporting.

5) International Cash Management: Optimize global cash and treasury risk Management by improving Foreign Exchange (FX) management system.

6) FX and Interest Rate Management: Evaluate foreign exchange and interest rate practices and strategy to identify measure, manage and monitor these activities. Also, assess opportunities for improvement.

The two main focus areas of treasury operations are:

(i) Fund management, and
(ii) Financial risk management. The former includes cash management and asset liability mix. Financial risk management includes forex and interest rate management apart from managing equity and commodity prices and mitigating risks associated with them.