Treasury Management Lecture Notes

A comprehensive set of flashcards covering definitions, objectives, functions, risk tools, liquidity metrics, treasury models, office roles, and real-world examples from the Treasury Management lecture.

What is treasury management?

The process of managing a company’s money and financial resources so it can meet obligations, invest surplus cash, reduce risk, and support growth.

Name five key activities included in treasury management.

Handling cash flow, managing bank accounts, reducing financial risk, investing excess funds, and planning for future financial needs.

Which treasury objective ensures the company can meet its financial obligations as they come due?

Ensure Liquidity.

Which objective involves identifying and mitigating FX, interest-rate, and credit risks?

Manage Financial Risk.

Which objective focuses on investing idle funds safely and profitably?

Maximize Return on Excess Cash.

What treasury objective aims to leverage banking services while minimizing costs?

Efficient Bank Relationship Management.

What are the three core tasks of cash management activities?

Daily cash positioning, cash-flow forecasting, and managing inflows/outflows.

If Day-1 inflows are $10,000 and outflows are $12,000, what is the cash shortfall?

$2,000 shortfall.

Which payment method is typically used for domestic electronic payments in the United States?

Automated Clearing House (ACH).

Which international messaging network is widely used for cross-border wire transfers?

SWIFT.

What is the formula for working capital?

Working Capital = Current Assets – Current Liabilities.

How is the current ratio calculated?

Current Ratio = Current Assets / Current Liabilities.

What is the quick ratio formula?

Quick Ratio = (Current Assets – Inventory) / Current Liabilities.

List the steps of the working-capital cycle in order.

Inventory → Sales → Receivables → Collections → Cash.

Name the three main types of financial risk managed by treasury.

Foreign exchange (FX) risk, interest-rate risk, and credit risk.

Which derivative locks in an exchange rate for a future date?

Forward contract.

What instrument allows swapping fixed interest payments for floating payments?

Interest-rate swap.

Which derivative gives the right—but not the obligation—to buy or sell currency?

Option.

When investing surplus cash, what are the priorities in order of importance?

Safety → Liquidity → Yield.

Give two examples of safe, liquid instruments used for surplus cash investments.

Treasury bills and certificates of deposit (or money-market funds).

What is account rationalization in bank-relationship management?

Reducing the number of bank accounts to lower fees and improve control.

What is cash pooling?

Consolidating balances from multiple accounts to optimize group liquidity and reduce borrowing needs.

Which two regulatory concepts must treasury comply with to prevent money-laundering?

Know Your Customer (KYC) and Anti-Money Laundering (AML).

In a centralized treasury model, who controls cash, risk, and investments?

A single headquarters or central treasury center.

Give one advantage and one disadvantage of centralized treasury management.

Advantage: Better global cash visibility and control. Disadvantage: Slower response to local needs (or potential tax/regulatory challenges).

What is a key advantage of decentralized treasury management?

Faster decision-making and better adaptation to local regulations and market practices.

Which global company uses a hybrid treasury model combining central control with local flexibility?

Siemens AG.

What is the primary role of the treasury front office?

Strategy and execution—managing daily liquidity, executing trades, raising funding, and investing surplus cash.

What does the treasury middle office do?

Monitors and manages risk, enforces policies, ensures regulatory compliance, and prepares risk reports.

What are the main responsibilities of the treasury back office?

Trade confirmation, settlement, payment processing, reconciliations, accounting entries, and documentation.

Why is segregation between front, middle, and back offices important?

Prevents conflicts of interest and fraud, promotes accountability, and ensures regulatory compliance.

How did Tesla cut borrowing costs by $100 million?

By centralizing treasury operations and implementing a cash-pooling system to use cash more efficiently.

By what percentage did Tesla reduce FX-volatility impact on earnings?

Approximately 60%.