Q. Explain about Centralised treasury function?
Treasury departments are usually a feature of larger companies than Frantic although it is perhaps beneficial to consider the benefits of such departments to assess what if any practices might reasonably be adopted. Fundamentally treasury centralisation is an issue concerned with economies of scale. The advantages of treasury departments are numerous and include
- Consolidating bank accounts to create also a single account through which all cash resources are managed or a virtual single account with automatic offset between different accounts. Such an approach maximises put down interest that is typically higher on larger cash balances for positive balances whilst minimising overdraft costs for negative balances.
- Borrowings is able to be arranged in bulk thus accessing lower rates.
- Foreign exchange management is enhanced. In the same manner that cash balances are effectively consolidated then so can foreign exchange risk without the need to enter into expensive hedging agreements. Foreign exchange risk consolidation is a extremely common practice.
- Treasury expertise is able to be developed within a single department thus enhancing the quality of resource management generally.
- Precautionary cash balances while centralised are probable to be lower than when considered on an individual account basis.