Treasury management
Overview
Treasury management, also known as treasury operations, is a specialized function in finance that is responsible for managing an organization's liquidity, investments, and risk related to the financial market. It involves the creation and governance of policies and procedures that ensure the company manages its financial resources prudently to maximize its value and reduce potential financial risk.
Function of Treasury Management
The primary function of treasury management is to establish and monitor the company's financial activity. This includes managing the organization's investments, funding, liquidity, and risk management. Treasury management is often a department within a larger finance division in a company and plays a critical role in financial planning and decision-making.
Liquidity Management
One of the key responsibilities of treasury management is liquidity management. This involves ensuring that the organization has sufficient cash on hand to meet its obligations, such as paying suppliers, employees, and creditors. Liquidity management also involves managing the company's working capital and short-term financing.
Investment Management
Treasury management is also responsible for investment management. This involves identifying and investing in opportunities that will provide the highest return for the least risk. The treasury department will often work closely with the company's finance department to determine the best investment strategies.
Risk Management
Another important function of treasury management is risk management. This involves identifying, assessing, and managing the financial risks that the company faces. These risks can include interest rate risk, foreign exchange risk, credit risk, and commodity risk. The treasury department will use various financial instruments, such as derivatives, to hedge these risks.
Treasury Management Systems
A Treasury Management System (TMS) is a software application or service that automates the repetitive and time-consuming aspects of treasury management. A TMS provides a centralized place for recording and analyzing financial transactions, managing cash and financial risk, and producing financial reports.
Treasury Management in Banks
In banks, treasury management performs a slightly different role. The bank's treasury department is responsible for managing the bank's money, ensuring that the bank has enough liquidity to meet its obligations, and managing the bank's risk.
Asset-Liability Management
One of the key responsibilities of a bank's treasury department is asset-liability management. This involves managing the risks that arise from mismatches between the assets and liabilities (loans and deposits) of the bank.
Liquidity Risk Management
Another important function of a bank's treasury department is liquidity risk management. This involves ensuring that the bank has enough cash on hand to meet its obligations, such as withdrawals by customers.
Capital Management
The treasury department of a bank is also responsible for capital management. This involves ensuring that the bank has enough capital to support its risk-taking activities and to meet regulatory requirements.