Page 160 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Unit 9: Cash Flows Forecasting and Treasury Management

9.7.2 Functions of the Treasury Department Notes

The important functions of a treasury department are as follows:
1. Setting up corporate financial objectives
(a) Financial aim and strategies

(b) Financial and treasury policies
(c) Financial and treasury systems.
2. Liquidity Management
(a) Working capital management
(b) Money transmission and collection management

(c) Banking relationships.
3. Funding Management
(a) Funding policies and procedures

(b) Sources of funds (Domestic, International, Private, Public)
(c) Types of fund (Debt, equity, hybrid).
4. Currency Management
(a) Exposure policies and procedures
(b) Exchange dealings including, hedging, swaps, future and options

(c) Exchange regulation.
5. Corporate Finance
(a) Business acquisitions and sales

(b) Project finance and joint ventures.
The main functions of the treasury department can be broadly classified as follows:
(a) raising of funds
(b) managing interest rate and foreign exchange exposure, and
(c) maintenance of liquidity.

Raising of funds in not a regular activity. During normal operations the funds which have
already been raised are used for operations, but when the firm opts for new projects, or when the
firms go for backward and forward integration, additional amount of funds are required. In
these cases the treasury department has to look out for different sources of funds and decide
upon the source.

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Caution The treasury department will also decide the manner in which funds are to be
raised viz., it should be either be through a public issue or private placement, through
debt or equity.

With the growing globalisation of economies all over the world, companies are increasingly
exporting and importing goods and services. This gives rise to the problem of foreign exchange
exposure.

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