UNIVERSITY OF DAR ES SALAAM

BUSINESS SCHOOL
DEPARTMENT OF FINANCE
FN307: TREASURY MANAGEMENT
LECTURE 1: THE ROLE AND FUNCTIONS OF
TREASURY MANAGEMENT
April 15, 2021

Tobias SWAI, PhD.

tobias@udsm.ac.tz

“Knowledge for Management Excellence” [Know ME]

 Learning Objectives
 Understand the basic functions of Treasury and
Financial Control
 Defining Treasury Management and the
functions of Corporate Treasury
 Understand Treasury policy
 Understand Treasury structure in an
organisation
 Discussion of current developments in
Treasury functions and the future of Treasury
Management
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Business Firms and Strategy

 Business types
 Course focus

 Listedcompanies
 Banking institution

 Business Strategy
 Objective of the firm

 Focus for the course

 Not SMEs – Corporate organization

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Finance in a Corporate Firm
 What is Finance?
 Allocation of funds Vs Acquisition of funds
 What are the key areas of study in Finance?
 Personal Finance, Public Finance, Corporate Finance,
International Finance, Behavioral Finance, Social Finance

 Key decisions and Balance sheet structure?

 Asset structure/Asset management.
 Financial and capital structure management.

4
Balance Sheet Structure

5
 Finance Functions
where it fits in the organization
TREASURY TASKS F/CONTROLLER TASKS

Financial planning and analysis External reporting

Liquidity management Financial & management
accounting
Funding decisions/ Financing and Tax Planning and Management
dividend
Investment management Budget planning & control.
&financing – Capital budgeting Account receivables and internal
and financial investments audit
Risk management Management Information system
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Finance Functions
where it fits in the organization

Thursday, April
7 15, 2021
Treasury Management
Definition
 The association of Corporate Treasures, defines
Treasury Management as “the corporate function
handling of all financial matters, the generation of
external and internal funds for business, the
management of currencies and cash flows, and complex
strategies, policies and procedures of corporate finance”
 Also it can be defined as “the function concerned with
the provision and use of finance. It covers provisional of
capital, short-term borrowing, foreign currency
management, banking, money and capital markets
investments”.

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 The Functions of Treasury
 The Treasury functions can in principle be classified
as;
 The core functions (these are functions which can be
found in every company)
 The marginal functions (these are functions which are
extremely company specific and/or only form part of
treasury in selected cases like Finance controlling,
export/project finance, management of pensions
funds, investor relations and M&A transactions
 Other treasury function that do not form the role of
treasury. (these includes insurance, debtor
management, Collection, taxation and law)

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 The Functions of Treasury
the core functions

 There are five core functions of Treasury which are;

1. Cash management
This deal with payment transactions, planning, account
organization, cash flows monitoring, managing bank
account, Electronic banking, pooling and netting and
in-house banking.
2. Liquidity planning and control
Making sure the company has liquid funds it needs
and invest any surplus funds, even for short term.
[ 7-1]
Working capital management, money management
and investment are important here.

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 The Functions of Treasury
the core functions cont.

3. Management of interest, currency and commodity

risks
The core functions here include, interest and currency
risks, as well as increasing also commodity risks. It
involves the control of these risks as well as
documentation of hedging transactions.
4. Procurement of finance and financial investments
This is much concerned with all forms of raising funds
from alternative sources of funds. Funding policies
and procedures, sources of funds and types of fund.

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The Functions of Treasury
the core functions cont.

5. Corporate finance
This includes Medium and long term financing
(capital market), group financing, credit, leasing,
promotion instruments, shareholders’ loans
(include handling, monitoring, terms, conditions,
hedging, periods & contractual dates)
Also it is involved with strategic decisions,
(raising capital and dividend decisions), tactical
decisions (risk management) and operational
[ 7-1]

decisions (investment of surplus funds)

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 Treasury Policy
 A Treasury Department should have a formal
statement of Treasury Policy and detail
guidance of Treasury Procedures.
 The Aim of treasury policy is to enable
managers to establish direction, specifying
parameters and exercise control and also
provide a clear frame work and guidelines for
[making
7-1] decisions.

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 Treasury Policy cont.
 The treasury policy guidelines needs to cover;
i. Roles and responsibilities of the treasury function.
ii. Risks requiring to be managed and their management
iii. Authorizations and dealing limits
 Guidelines on risks should cover:
i. Identification and assessment methodology
ii. Criteria for tolerable and unacceptable levels of
risks
[ 7-1]
iii. Management guidelines, covering risk elimination,
control, retention and transfer
iv. Reporting and dealing with exceptions, guidelines
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 Treasury Policy cont.
 The risk areas that might be covered include:
i. Counterparty exposure

ii. Currency and interest rate risks

iii. Funding risks

iv. Liquidity Management

v. Investment management

vi. Banking relationships

[ 7-1]
 The Treasury Policy must also specify on how
Treasury Performance would be measured.

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 Treasury Structure
 Organizing treasury functions according to
their roles;
I. The Front Office
II. The Middle Office
III. The Back Office
I. The front office deals with market operation
activities, including funding and investment
of expected shortfalls and surpluses:
[ 7-1]

 Retailing &Whole sale funding

 Investment and cash flow management
 Proprietary trading 16
 Treasury Structure
 Organizing treasury functions according to
their roles cont.;
II. The Middle Office deals with Risk analytics
and compliance:
 Risk measurement

 Pricing and portfolio performance

measurement, analysis and reporting
 Compliance
[ 7-1]

 Quantitative strategies and risk research

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 Treasury Structure
 Organizing treasury functions according to
their roles cont.;
II. The Back Office deals with Treasury
operations
 Cash management

 Accounting and reporting

 Settlements
[ 7-1]
 Banking relations

 Information services (Treasury

management systems)
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The Treasury Structure in
MNCs
 MNCs operates globally have a number of
subsidiaries.
 The Treasury Function can either be
Decentralized or Centralized, the latter is most
common structure in large MNCs
 Can be Operated as a cost centre or profit
centre
 Cash management can be improved by both
centralization and multilateral netting.

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 Treasury Structure
Centralization Vs Decentralization

 Advantages of having a specialist centralized

Treasury structure:
i. Centralized liquidity management avoids mixing of
cash surpluses and overdrafts in different localized
bank account.
ii. Large volume of cash are available for investment
giving better short term investment opportunities
iii. Any borrowing can be arranged in bulk, at lower
interest than for smaller borrowing
[ 7-1]

iv. Foreign currency risk management is likely to be

improved in a group of companies
Thursday, April
20 15, 2021
 Treasury Structure
Centralization Vs Decentralization
 Advantages of having a specialist centralized
Treasury structure cont.:
v. Possibility of employing specialized expert with a
wide knowledge on Treasury management.
vi. The centralized pool of funds required for
precautionary purposes will be smaller than the
sum of separate precautionary balances if it were
held under decentralization.
vii. Transfer prices can be set centrally, thus
[ 7-1]

minimizing the global tax burden of the group.

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 Treasury Structure
Centralization Vs Decentralization

 Advantages of having a decentralized Treasury

structure:
i. Sources of finance can be diversified and can be
matched with local assets.
ii. Greater autonomy can be given to subsidiaries
and divisions because of the closer relationship
they will have with the decentralization.
iii. The decentralized treasury function may be able
[ 7-1]
to be more responsive to the needs of individual
operating units.

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 Current Development in Treasury
Functions

 The significant catalysts are Globalization, IT,

COVID-19 and Pressure to add value to
shareholders.
 Its effect on
 Changing role of Treasury Management

 Risk management

 Working capital management

 Tax management

 Enhancing professionalism

 IT management
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 End of Lecture
Key Take Homes
 Register to LMS access course materials and teaching plan

 Find Financial Statement of a Bank/ Corporate firm ~

Listed
 www.dse.co.tz
 www.sec.gov
 Find Treasury Policy of a Corporate firm

 Google ~ read through every details of the treasury

policy
 What are key consideration for Corporate Treasury Policy

 What are current development in treasury management

 Tanzania Financial Infrastructure to support Treasury

Management function
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Announcements

• Seminars Next Week…

• You will be organized in groups of
4. You will work as a team
• Seminar Questions – Will be
available through LMS

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