The significant functions of a treasury department are as given below:
a) Setting up corporate financial goals
- Financial strategies and aim
- Treasury and financial policies
- Treasury and financial systems.
b) Liquidity Management
- Working capital management
- Money collection and transmission management
- Banking links.
c) Funding Management
- Funding procedures and policies
- Sources of funds as like Domestic, International, Private and Public
- Kinds of fund (Debt, equity, hybrid).
d) Currency Management
- Exposure procedures and policies
- Exchange dealings comprising, hedging, options, future and swaps
- Exchange regulation.
e) Corporate Finance
- Business sales and acquisitions
- Project finance and joint ventures.
The main functions of the treasury department can be largely classified as given below:
a) Raising of funds
b) Managing interest rate and foreign exchange exposure, and
c) Maintenance of liquidity.
Rising of funds in not a usual activity throughout normal operations the funds that have previously been raised and they are used for operations, but while the firm opts for new projects, or while the firms go for forward and backward integration, further amount of funds are needed. In such cases the treasury department has to watch for various sources of funds and decide on the source. The treasury department will also settle on the way wherein funds are to be raised as it must be either be by a public issue or private placement, by equity or debt.
With the rising globalization of economies all over the world, companies are gradually more importing and exporting services and goods. This offers rise to the problem of foreign exchange exposure. For illustration, company an exports goods worth Rs.44, 000, as of nowadays that is equivalent to $1000 assuming an exchange rate of Rs.44 = 1$. The payment for this export order will be received after 3 months. During this intervening period whether the Indian rupee appreciates in comparison to dollar by 5 percent that is Rs. 41.80 = 1$ the effective receipt after 3 months would be as Rs.41, 800 merely. So as to ignore this company could take a forward cover by which the unfavourable movement in currency prices is even out.
The major function of the treasury department is to keep liquidity. Liquidity here implies the capability to pay in cash the obligations that are unpaid corporate liquidity has two dimensions that are the qualitative and quantitative aspects. The qualitative aspects considers to the capability to meet all present and potential demands on cash in a way that minimizes costs and maximizes the value of the firm. The quantitative aspect considers as structure, utilization and quantum of liquid assets.
Excess liquidity or idle cash leads to deterioration in profits and reduces managerial efficiency. This may also lead to dysfunctional behavior among managers as raised speculation, unjustified extension and expansion of credit and liberal dividend. Conversely, a tight liquidity position leads to constraints in business operations leading to, reduced rate of return and missing on opportunities. Thus the most significant challenge before the treasury department is to make sure the 'proper' level of cash in a firm.