Treasury Operations & Controls Quiz

The risk that a party to a contract, like a bank, won't fulfill their financial obligations.

A principle that ensures no single person controls the entire process of a transaction, reducing the risk of fraud or error.

A situation where there is a risk that a financial institution will not be able to meet its obligations, potentially leading to a loss for the organization.

The principle that treasury operations should have strong controls to mitigate risks such as fraud, error, and market failures.

A process where the legal entity and branches involved assess the creditworthiness of a counterparty before entering into a financial transaction.

A key control measure in treasury operations, preventing fraud and error.

The potential for loss due to the actions of a counterparty in a contract.

A comprehensive evaluation that assesses the financial health of a counterparty to determine the risk of default.

Credit ratings should be considered, but not solely relied upon, in assessing counterparty risk. They can be slow to reflect market changes.

The ability and willingness of governments to support their banks is important for treasurers to assess as part of counterparty risk management.

Straight-through processing (STP) is the automated and seamless flow of information within and between systems, from initiation to completion. It eliminates manual steps and reduces errors.

STP enhances the effectiveness of transaction processing by streamlining information flow and reducing manual intervention.

A Treasury Management System (TMS) is a centralized platform for managing treasury operations. It provides control, security, and reporting capabilities for all treasury transactions.

A TMS helps streamline complex treasury operations through automation, providing an audit trail and generating reports that comply with financial reporting standards.

Although spreadsheets are useful for general forecasting, dedicated TMS solutions offer more comprehensive risk management capabilities.

TMs are essential for large organizations to manage and track all treasury transactions, ensure data security, and comply with financial reporting requirements.

A structured approach to identifying, evaluating, and managing financial risks within an organization that aims to achieve business objectives.

The initial step in risk management, where all potential financial dangers to the organization are identified and categorized based on their sources and impact.

The second stage in risk management, where the likelihood of each identified risk occurring and its potential impact on business goals are evaluated. This includes prioritizing high-impact risks for further attention.

A tool used to visually represent the likelihood and impact of various risks, helping to prioritize and manage those with the greatest potential for harm.

The risk associated with fluctuations in exchange rates affecting a company's revenue and profits.

Businesses with operations concentrated in specific geographic regions are more susceptible to economic exchange rate risks compared to global companies.

The risk that arises when an organization commits to a price before entering into a transaction, especially when dealing with uncertain volumes or contracts with cancellation clauses.

A financial tool that gives the holder the right, but not the obligation, to buy or sell a currency at a predetermined price within a specified time frame.

A contract that obligates the parties to buy or sell a currency at a fixed price on a predetermined date.

A way to manage pre-transaction risk by transferring the risk to someone else, often using a financial instrument like an option.

The practice of using currency forwards to hedge a portion of the forecasted costs or revenue against currency fluctuations.

The risk arising from uncertainty in currency exchange rates, especially in volatile markets.

A document outlining an organization's approach to managing financial risks. It includes objectives, framework, procedures, and reporting.

The ability of an organization to take risks based on its financial position and tolerance for potential losses.

Measuring the likelihood of potential financial loss and its impact on the organization.

Actions taken to mitigate or avoid financial risks, often based on the organization's risk appetite.

Clear guidelines on who is responsible for each aspect of the treasury function.

The degree to which the treasury function communicates and works with other departments to manage financial risks.

Performance reporting and feedback mechanisms ensure that the treasury function is effectively managing financial risks.

The risk that changes in foreign exchange (FX) rates will make committed cash flows in a foreign currency worth less or cost more than expected.

The right to buy or sell an underlying asset at a specific price (strike price) on or before a specific date.

The price paid upfront for an option contract. It represents the cost of having the right to exercise the option.

An agreement to buy or sell a specific asset at a specific price on a specific future date. It eliminates uncertainty in future prices.

A standardized contract to trade a specific asset at a specific future date, traded on an exchange.

Buying or selling goods and services only in the local currency to mitigate transaction risk. Completely eliminates FX risk.

Offsetting foreign currency exposures within an organization or between its subsidiaries to reduce transaction risk.

Transferring transaction risk to a third party, such as a bank, through hedging instruments like forward contracts.