UNIT -1 INTRODUCTION

GROUP MEMBERS

1. Amirthalakshmi . T
2. Anannaya .G
3. Arthi .T
4. Brindha . G
5. Gowri . S
❖ MEANING OF TREASURY MANAGEMENT:

Treasury management involves overseeing an organization's holdings, with a focus on

managing cash flow, investments, and financial risk. The primary goals are to ensure the
organization has sufficient liquidity to meet its obligations, optimize the return on investments,
and mitigate financial risks. This includes activities such as cash management, funding
management, risk management, and financial reporting.

❖ OBJECTIVES OF TREASURY MANAGEMENT:

1.Ensuring Liquidity: Maintaining adequate cash flow to meet the organization's

operational and financial obligations.

2.Optimizing Cash Utilization: Efficiently managing the company's cash and financial
resources to maximize returns on investments.

3.Risk Management: Identifying, assessing, and mitigating financial risks such as interest
rate fluctuations, foreign exchange risks, and credit risks.

4.Cost Management: Minimizing the cost of financing and transaction fees.

5.Financial Planning and Forecasting: Accurately predicting future cash flows and
financial needs to support strategic planning.

6.Compliance and Reporting: Ensuring adherence to regulatory requirements and

providing accurate financial reports to stakeholders.

7.Investment Management: Making informed decisions about where to invest surplus

funds to achieve the best possible returns while maintaining acceptable risk levels.

❖ SIGNIFICANCE OF TREASURY MANAGEMENT:

1.Improved Cash Flow Management: Enhances the ability to predict and manage cash
inflows and outflows, ensuring optimal cash levels for operational needs.

2.Support for Business Growth: Provides the financial stability and resources needed
to support business expansion and investment opportunities.

3.Interest Rate Management: Actively manages exposure to interest rate fluctuations,

helping to stabilize borrowing costs and investment returns.

4.Credit Management: Monitors and manages the company’s credit exposure,

ensuring that counterparties are creditworthy and minimizing the risk of default.

5.Technology Utilization: Leverages advanced treasury management systems and

technology to improve accuracy, efficiency, and data analysis capabilities.

6.Stakeholder Confidence: Enhances transparency and reliability in financial

operations, thereby boosting confidence among investors, creditors, and other
stakeholders.

7.Operational Efficiency: Streamlines financial processes, reducing manual work and

operational bottlenecks, which increases overall productivity.

8.Emergency Preparedness: Establishes contingency plans and financial strategies to

handle unexpected events and economic downturns.

9.Global Operations Support: Manages the complexities of international

transactions, foreign exchange, and cross-border cash flows effectively.

10.Capital Structure Optimization: Balances debt and equity levels to minimize the
cost of capital and maximize shareholder value.
 ❖ FUNCTIONS OF TREASURY MANAGEMENT

treasury management is a critical aspect of financial management within an organization,

focusing on optimizing the use of financial resources to ensure liquidity, manage risks, and
maximize returns. Here are the primary functions of treasury management:

1. Cash Management
• Cash Flow Forecasting: Estimating future cash inflows and outflows to ensure sufficient
liquidity for operational needs and strategic investments.
• Cash Positioning: Managing daily cash balances to optimize the use of available cash,
including transferring funds between accounts as needed.
• Liquidity Management: Ensuring that there is enough cash or liquid assets available to
meet short-term obligations and operational requirements.

2. Working Capital Management

• Accounts Receivable: Managing the collection of receivables to ensure timely cash inflows
and minimize days sales outstanding (DSO).
• Accounts Payable: Managing the payment of obligations to suppliers, ensuring payments
are made in a timely manner while optimizing terms and avoiding late fees.
• Inventory Management: Overseeing inventory levels to avoid excess stock and ensure
optimal use of resources.

3. Investment Management
• Short-term Investments: Managing surplus cash by investing in short-term, low-risk
financial instruments to generate returns while maintaining liquidity.
• Long-term Investments: Evaluating and investing in long-term assets and securities to
support growth strategies and improve financial returns.

4. Risk Management
• Interest Rate Risk Management: Using financial instruments such as derivatives to hedge
against fluctuations in interest rates that can affect borrowing costs.
• Foreign Exchange Risk Management: Managing exposure to currency fluctuations
through hedging strategies if the organization engages in international trade or has foreign
investments.
• Credit Risk Management: Assessing and mitigating the risk of counterparty default in
financial transactions.

5. Funding and Capital Structure

• Debt Management: Planning and managing the organization’s borrowing needs, including
selecting appropriate sources of debt and negotiating terms.
• Equity Management: Managing the company’s equity, including capital raising activities
such as issuing new shares or managing buybacks.
• Capital Structure Optimization: Balancing debt and equity to minimize the cost of capital
and maximize shareholder value.

6. Bank Relationship Management

• Bank Selection and Negotiation: Choosing banking partners and negotiating terms for
services and financing arrangements.
• Bank Account Management: Overseeing the opening, closing, and management of bank
accounts to ensure efficiency and cost-effectiveness.

7. Financial Reporting and Analysis

• Treasury Reporting: Preparing reports on cash flows, liquidity, investments, and financial
risks for management review and decision-making.
• Performance Analysis: Analysing the effectiveness of treasury operations and strategies to
identify areas for improvement and ensure alignment with organizational goals.

8. Compliance and Controls

• Regulatory Compliance: Ensuring that treasury operations comply with relevant laws,
regulations, and accounting standards.
• Internal Controls: Implementing and maintaining internal controls to prevent fraud, errors,
and ensure the accuracy of financial transactions.

9. Strategic Planning
• Financial Strategy Development: Developing and implementing financial strategies that
align with the organization's overall business strategy and objectives.
• Scenario Planning: Assessing potential future scenarios and their impact on the
organization’s financial position and planning appropriate responses.
10. Treasury Technology and Systems
• System Implementation: Selecting and implementing treasury management systems
(TMS) to streamline processes and improve efficiency.
• Technology Integration: Integrating treasury systems with other financial systems and
enterprise resource planning (ERP) systems to enhance data accuracy and workflow
efficiency. Effective treasury management is essential for maintaining financial stability,
supporting growth initiatives, and ensuring the long-term success of an organization.

❖ SCOPE OF TREASURY MANAGEMENT

The scope of treasury management encompasses a wide range of activities related to

managing an organization’s financial resources, including cash, investments, and risk
exposures. Some of the key areas of scope for treasury management include:

• Cash management:
This involves managing an organization’s cash flows to ensure that it has sufficient
liquidity to meet its short-term and long-term obligations. This includes managing bank
accounts, monitoring cash balances, forecasting cash flows, and optimizing cash usage.

• Investment management:
Treasury management is responsible for managing an organization’s investment
portfolio to maximize returns while minimizing risks. This includes selecting appropriate
investment vehicles, monitoring performance, and implementing investment strategies.

• Risk management:
This involves identifying, assessing, and mitigating various types of financial risks,
including credit risk, market risk, interest rate risk, foreign exchange risk, and commodity
risk. Treasury management uses various risk management techniques such as hedging and
insurance to mitigate these risks.

• Funding and capital management:

Treasury management is responsible for managing an organization’s funding and
capital structure to ensure that it has sufficient capital to support its operations and growth
objectives. This includes raising capital through debt and equity financing, and managing
debt repayment schedules.
 • Treasury operations:
This involves managing the day-to-day operations of the treasury function,
including transaction processing, cash positioning, cash forecasting, and bank account
reconciliation.

• Strategic planning:
Treasury management is also responsible for providing strategic guidance to support
an organization’s growth and development objectives. This includes developing and
implementing financial strategies, analysing market trends and risks, and identifying
opportunities for growth and expansion.
The scope of treasury management function is quite vast and it continues to expand. A
treasury manager should be able to understand and appreciate the link between business
strategy, and organization. Treasury management includes the management of cash flows,
banking, money-market and capital-market transactions; the effective control of the risks
associated with those activities; and the pursuit of optimum performance consistent with
those risks. This definition is intended to embrace an organizations use of capital and project
financings, borrowing, investment, and hedging instruments and techniques.

❖ ROLE OF INFORMATION TECHNOLOGY IN TREASURY

MANAGEMENT :

1. Treasury Management Systems (TMS):

IT enables the implementation and utilization of TMS, which centralizes
and automates treasury operations such as cash management, risk management, and
reporting. TMS provides real-time visibility into cash positions, facilitates decision-making,
and improves operational efficiency.

2. Data Integration and Automation:

IT systems facilitate seamless integration of financial data from various
sources (ERP systems, bank accounts, trading platforms) into the TMS. Automation reduces
manual processes, minimizes errors, and improves data accuracy for better decision-making.

3. Risk Management and Analytics:

IT tools enable treasury departments to perform sophisticated risk analytics,
scenario modelling, and stress testing. This helps in assessing and mitigating financial risks
such as interest rate risk, foreign exchange risk, and liquidity risk more effectively.
4. Payment Systems and Security:
IT systems support secure and efficient payment processing through
electronic funds transfers (EFT), Automated Clearing House (ACH), and SWIFT messaging.
Robust security measures protect against fraud and unauthorized transactions.

5. Forecasting and Cash Flow Management:

IT tools enable accurate cash flow forecasting by analysing historical data,
market trends, and business projections. This capability helps treasury teams optimize cash
positions, manage liquidity, and support strategic financial decisions.

6. Compliance and Reporting:

IT systems automate regulatory compliance processes by generating
accurate reports and ensuring adherence to financial regulations. This reduces compliance
risks and facilitates timely reporting to regulatory authorities.

7. Integration with Banking Partners:

IT facilitates seamless communication and integration with banking
partners and financial institutions. APIs and connectivity solutions enable real-time visibility
of account balances, transaction status, and banking services.

8. Audit Trails and Controls:

IT systems provide audit trails and robust controls over treasury activities,
ensuring transparency, accountability, and compliance with internal policies and external
regulations.

9. Mobile and Remote Access:

Modern IT solutions support mobile and remote access to treasury
management functions, allowing treasury professionals to monitor activities, approve
transactions, and access critical information securely from anywhere.

10. Continuous Improvement and Innovation:

IT enables treasury departments to leverage emerging technologies such as
artificial intelligence (AI), machine learning, and blockchain for advanced analytics,
predictive modelling, and innovative treasury solutions.
 ❖ DIFFERENCE BETWEEN TREASURY MANAGEMENT AND
FINANCIAL MANAGEMENT

BASIS FOR TREASURY FINANCIAL

COMPARISON MANAGEMENT MANAGEMENT
MEANING Treasury management is Financial Management
the act of managing a means planning,
company's daily cash organizing, directing
flows and larger-scale and controlling the
decisions when it comes financial activities such
to finances. as procurement and
utilization of funds of
the enterprise
FOCUS Focuses on handling the Focuses on overseeing
cash and liquidity of an every aspect of the
organization. performance and
financial health of an
organization.

FUNCTION Involve risk Involves making

management, loan and financial judgments,
borrowing management, evaluating financial
and cash flow facts, and developing
management and putting into practice
financial plans.
DOCUMENTS Involves overseeing Involves making
MAINTAINED financial items including investment choices,
derivatives, currencies, generating financial
and bonds. reports and budgeting,
and managing assets and
liabilities
PERFORMANCE Typically performed by Typically performed by
a company's Treasury a company's Finance
department department
OBJECTIVES Keeping adequate Achieving long-term
financial reserves and financial stability and
maximizing investment optimizing shareholder
returns are among the value are among the
Objectives objectives.
 ❖ THE ROLE AND RESPONSIBILITIES OF TREASURY
MANAGEMENT

1. Cash Management Solutions

One of the primary focuses of treasury management services is to streamline cash flow
processes. This involves optimizing the management of an organization’s cash resources to
ensure sufficient liquidity for daily operations while minimizing idle cash balances. Treasury
management services assist in achieving these goals through the following activities:
• Cash Forecasting: By utilizing sophisticated financial models and historical data, treasury
management services help organizations accurately forecast their cash flows. This enables
better planning and decision-making regarding investments, debt repayments, and other
financial obligations.
• Bank Account Management: Efficient management of bank accounts is essential for
effective cash management. Treasury management services assist in consolidating bank
accounts, rationalizing banking relationships, and negotiating favourable terms with financial
institutions. This helps reduce costs, streamline processes, and enhance control over cash
positions.
• Treasury management services: provide solutions for optimizing payment processes. This
includes implementing electronic payment systems, leveraging secure payment gateways, and
utilizing electronic data interchange (EDI) for seamless transaction processing. These
measures enhance efficiency, reduce errors, and facilitate better cash flow management.

2. Risk Management Tools and Strategies

Treasury management services play a crucial role in helping organizations identify and
mitigate financial risks. By implementing effective risk management tools and strategies,
these services protect organizations from volatile market conditions and unforeseen events.
The key components of risk management covered by treasury management services include:
• Hedging Techniques: Treasury management services assist in designing and implementing
hedging strategies to minimize exposure to various financial risks, such as interest rate risk,
foreign exchange risk, and commodity price risk. This involves utilizing derivatives, such as
futures, options, and swaps, to offset potential losses and stabilize cash flows.
• Risk Assessment and Monitoring: Treasury management services conduct comprehensive
risk assessments to identify potential vulnerabilities within an organization’s financial
structure. They continuously monitor market trends, regulatory changes, and economic
indicators to provide timely insights and recommendations. This helps organizations adapt
their risk management strategies to mitigate emerging risks effectively.
3. Investment Advisory and Portfolio Management
Another vital aspect of treasury management services is providing guidance on investment
decisions and optimizing portfolio performance. These services assist organizations in
achieving their investment objectives by offering the following support:
• Performance Monitoring and Reporting: Treasury management services provide regular
performance monitoring and reporting to evaluate the effectiveness of investment strategies.
They employ advanced analytics and reporting tools to track portfolio performance, measure
returns, and assess risk-adjusted performance metrics. This enables organizations to make
informed decisions and optimize their investment portfolios.
• Portfolio Diversification: Effective portfolio diversification is crucial for managing
investment risk. Treasury management services help organizations construct well-diversified
portfolios by allocating investments across various asset classes, sectors, and geographic
regions. This reduces the impact of volatility and enhances long-term returns.
• Investment Strategy Development: Treasury management services collaborate with
organizations to develop investment strategies aligned with their financial goals, risk
tolerance, and regulatory requirements. They assess market conditions, analyse investment
options, and recommend suitable asset allocation strategies.

4. Treasury Systems and Technology

To streamline treasury operations and enhance decision-making capabilities, treasury
management services offer advanced software platforms and technological solutions. These
systems provide the following benefits:
• Automation of Treasury Processes: Treasury management services implement software
solutions that automate routine treasury tasks, such as cash position monitoring,
reconciliation, and reporting. This reduces manual errors, increases operational efficiency,
and frees up resources for more strategic activities.
• Reporting and Analytics: Treasury management services leverage technology to generate
comprehensive reports and analytics on key performance indicators. These reports provide
valuable insights into cash positions, liquidity metrics, investment performance, and risk
exposures. Advanced analytics tools enable organizations to conduct scenario analysis, stress
testing, and sensitivity analysis, facilitating better decision-making and risk management.

5. Integration and Connectivity

Treasury management services ensure seamless integration between different financial
systems and platforms. This includes integrating treasury management systems with
accounting systems, enterprise resource planning (ERP) systems, and banking platforms. This
integration enables efficient data exchange, improves data accuracy, and enhances overall
visibility and control over financial operations.
6. Security and Compliance:
Treasury management services prioritize data security and compliance with industry
regulations. They implement robust security measures to protect sensitive financial
information, such as encryption, multi-factor authentication, and access controls.
Additionally, these services help organizations stay compliant with relevant financial
regulations and reporting standards.

QUESTION :
1. Meaning of treasury management?
2. Explain the objective and function of treasury management?
3. Explain about the role of information technology in treasury
management?
4. Difference between the financial management (vs) treasury
management?
5. What are the role and responsibility of treasury management?