Treasury Management Chapter 3

To manage accounts payable and oversee credit activities.

The company's cash position is heavily influenced by the quality of its working capital management.

Transaction risk is the potential loss that arises when exchange rate movements impact the costs of imports or exports settled in foreign currency.

<p>Translation risk affects the value of assets denominated in foreign currency, while transaction risk impacts profits from costs related to exchanges.</p> Signup and view all the answers

<p>Economic risk is the threat of a company's competitiveness deteriorating due to cost increases in the country of production.</p> Signup and view all the answers

<p>Determining the foreign exchange strategy and monitoring foreign exchange positions.</p> Signup and view all the answers

<p>Interest rate risk is the risk that changes in interest rates negatively affect operating results or the value of assets and liabilities.</p> Signup and view all the answers

<p>Because interest rate changes can directly affect their borrowing costs and overall financial health.</p> Signup and view all the answers

<p>Increased pressure to create value for shareholders has driven companies to focus more on shareholder value.</p> Signup and view all the answers

<p>Treasurers are expected to create and maintain optimal balance sheet ratios.</p> Signup and view all the answers

<p>Companies are hesitant due to increasing risk awareness and the potential for unwise gambles with the corporate balance sheet.</p> Signup and view all the answers

<p>Three tasks include Cash Management, Financial Risk Management, and Corporate Finance.</p> Signup and view all the answers

<p>Financial risk management is crucial for companies to mitigate regulatory pressures and governance requirements.</p> Signup and view all the answers

<p>A company must ensure that the scope of treasury tasks is properly defined.</p> Signup and view all the answers

<p>Treasury activities are expected to neutralise adverse movements in interest rates and foreign exchange while limiting costs.</p> Signup and view all the answers

<p>Investor relations is part of the treasury function because it involves managing the company’s finances and communication with investors.</p> Signup and view all the answers

<p>To conclude treasury transactions.</p> Signup and view all the answers

<p>Deal settlement and confirmation.</p> Signup and view all the answers

<p>To mitigate organizational risks and prevent errors or fraudulent actions.</p> Signup and view all the answers

<p>Risks arising from internal shortcomings such as procedural weaknesses and human error.</p> Signup and view all the answers

<p>Companies may restrict or forbid the use of financial derivatives to cover positions.</p> Signup and view all the answers

<p>It assumes some tasks such as drawing up position and performance reports.</p> Signup and view all the answers

<p>A total limit is set per counterparty, meaning all transactions must remain within this limit.</p> Signup and view all the answers

<p>To facilitate risk management by defining allowable transactions and counterparties.</p> Signup and view all the answers

<p>Position risks that expose the company to foreign exchange risk.</p> Signup and view all the answers

<p>Trading is typically restricted to the home country's currency and currencies of OECD countries.</p> Signup and view all the answers

<p>Transaction limits specify the types and maximum sizes of transactions each officer can conclude.</p> Signup and view all the answers

<p>The individuals tasked with overseeing the segregation of duties.</p> Signup and view all the answers

<p>Internal control involves oversight by auditors to ensure compliance with procedures and limits.</p> Signup and view all the answers

<p>This separation fosters accountability and prevents fraud or errors in financial transactions.</p> Signup and view all the answers

<p>To reduce exposure to financial risks associated with complex instruments like derivatives.</p> Signup and view all the answers

<p>Position control manages the treasury’s exposure to market risks associated with its positions.</p> Signup and view all the answers

<p>Treasurers play key roles in managing corporate risks, including counterparty, currency, and interest risk.</p> Signup and view all the answers

<p>Duration measures the percentage change in market value of a portfolio as a result of a change in interest rates.</p> Signup and view all the answers

<p>VaR is a method that quantifies the risk of a portfolio, indicating the maximum potential loss over a specified time frame with a given confidence level.</p> Signup and view all the answers

<p>BPV denotes the fall in a portfolio's value due to a 1 basis point increase in interest rates.</p> Signup and view all the answers

<p>The three key risk measurement concepts are Duration, Value-at-Risk, and Stress testing.</p> Signup and view all the answers

<p>Stress testing evaluates how certain stress scenarios would impact the financial stability of a portfolio.</p> Signup and view all the answers

<p>A treasury system provides key management information reports on current and future liquidity positions, interest, and currency positions.</p> Signup and view all the answers

<p>Comparing revenues and costs with market averages helps determine if the treasurer's performance is aligned with market expectations.</p> Signup and view all the answers

<p>The VaR model calculates the possible loss in the market value of a loan portfolio relative to its current market value.</p> Signup and view all the answers

<p>VaR is calculated by multiplying the assumed change in the market interest rate by the duration and the market value of the portfolio.</p> Signup and view all the answers

<p>A line is drawn at 95% of the observations to identify the loss that will not be exceeded in 95% of the cases.</p> Signup and view all the answers

<p>The VaR method does not provide insights into risks or potential losses during extreme market scenarios, as it focuses on normal conditions.</p> Signup and view all the answers

<p>Stress testing analyzes the risks faced by a portfolio under extreme price or rate movement scenarios.</p> Signup and view all the answers

<p>The Value at Risk is USD 28.8 million.</p> Signup and view all the answers

<p>Stress tests rely on assumptions about potential extreme market conditions that could affect the portfolio.</p> Signup and view all the answers

<p>Focusing on possible losses is significant because it highlights where the actual financial risks lie for the entity, enabling more effective risk management.</p> Signup and view all the answers