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Questions and Answers
Questions and Answers
What is the primary objective of treasury operations in liquidity management?
What is the primary objective of treasury operations in liquidity management?
- To achieve optimal liquidity (correct)
- To invest in high-risk instruments
- To minimize cash shortages
- To raise capital through equity instruments
What is the purpose of investment management in treasury operations?
What is the purpose of investment management in treasury operations?
- To manage cash inflows
- To generate high returns
- To maintain liquidity (correct)
- To raise capital
What is the purpose of cash flow forecasting in treasury operations?
What is the purpose of cash flow forecasting in treasury operations?
- To manage daily liquidity
- To minimize cash shortages
- To predict cash flows (correct)
- To raise capital
What is cash concentration in treasury operations?
What is cash concentration in treasury operations?
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What is the purpose of funding management in treasury operations?
What is the purpose of funding management in treasury operations?
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What is the primary function of cash management in treasury operations?
What is the primary function of cash management in treasury operations?
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Questions and Answers
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Study Notes
Study Notes
Treasury Operations in Liquidity Management
Overview
- Treasury operations play a crucial role in liquidity management by ensuring the efficient use of a company's financial resources.
- The primary objective of treasury operations is to manage the company's cash, investments, and funding to achieve optimal liquidity.
Key Functions
- Cash Management: Managing cash inflows and outflows to ensure adequate liquidity and minimize cash shortages.
- Investment Management: Investing excess cash in low-risk, liquid instruments to generate returns while maintaining liquidity.
- Funding Management: Raising capital through debt or equity instruments to meet business needs and maintain liquidity.
Cash Flow Forecasting
- Short-term Forecasting: Predicting cash inflows and outflows over a short period (e.g., 13 weeks) to manage daily liquidity.
- Medium-term Forecasting: Predicting cash flows over a medium period (e.g., 6-12 months) to manage funding and investment decisions.
- Long-term Forecasting: Predicting cash flows over a long period (e.g., 1-5 years) to inform strategic business decisions.
Cash Concentration and Disbursement
- Cash Concentration: Gathering cash from various business units and bank accounts into a central location to optimize liquidity.
- Cash Disbursement: Managing the distribution of cash to various business units and vendors to ensure efficient use of funds.
Bank Relationship Management
- Bank Selection: Selecting banks that offer the best services, rates, and terms to meet the company's liquidity needs.
- Account Management: Managing bank accounts, including account opening, maintenance, and closure.
- Service Level Agreements: Negotiating service level agreements with banks to ensure timely and efficient cash management services.
Risk Management
- Liquidity Risk Management: Managing the risk of cash shortages or excesses to ensure optimal liquidity.
- Foreign Exchange Risk Management: Managing the risk of exchange rate fluctuations to minimize the impact on liquidity.
- Interest Rate Risk Management: Managing the risk of interest rate changes to optimize liquidity and minimize costs.
Treasury Operations in Liquidity Management
- Treasury operations ensure efficient use of financial resources to achieve optimal liquidity.
- The primary objective is to manage cash, investments, and funding.
Key Functions
- Cash management: managing cash inflows and outflows to ensure adequate liquidity and minimize cash shortages.
- Investment management: investing excess cash in low-risk, liquid instruments to generate returns while maintaining liquidity.
- Funding management: raising capital through debt or equity instruments to meet business needs and maintain liquidity.
Cash Flow Forecasting
- Short-term forecasting: predicting cash inflows and outflows over 13 weeks to manage daily liquidity.
- Medium-term forecasting: predicting cash flows over 6-12 months to manage funding and investment decisions.
- Long-term forecasting: predicting cash flows over 1-5 years to inform strategic business decisions.
Cash Concentration and Disbursement
- Cash concentration: gathering cash from various business units and bank accounts into a central location to optimize liquidity.
- Cash disbursement: managing the distribution of cash to various business units and vendors to ensure efficient use of funds.
Bank Relationship Management
- Bank selection: selecting banks that offer the best services, rates, and terms to meet the company's liquidity needs.
- Account management: managing bank accounts, including account opening, maintenance, and closure.
- Service level agreements: negotiating service level agreements with banks to ensure timely and efficient cash management services.
Risk Management
- Liquidity risk management: managing the risk of cash shortages or excesses to ensure optimal liquidity.
- Foreign exchange risk management: managing the risk of exchange rate fluctuations to minimize the impact on liquidity.
- Interest rate risk management: managing the risk of interest rate changes to optimize liquidity and minimize costs.
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