The Handbook of Global Corporate Treasury

A complete guide to operating a corporate treasury from a global perspective

For CFOs and treasurers looking to re-align their treasuries with the growth of the global firm, bankers who seek to maximize the value they create for clients, treasury and finance firm employees, and even finance students, this book provides an easy-to-read approach to this exciting and increasingly complex world. It includes a toolkit that gives practitioners a reference point that they can adapt immediately for use in their firms, providing a low-cost, high-efficiency advisory solution they previously lacked.

• Offers a uniquely global perspective unlike most books on the subject, which tend to focus on the US market
• Incorporates a bottom-up, segmented approach that uses fundamental building blocks to form a comprehensive overview of corporate treasury
• Includes a toolkit that provides a ready foundation for learning based on checklists, templates, and scorecards that can be adapted and customized to the needs of an individual firm
• Written by an author with more than 13 years working in different aspects of corporate and institutional banking, from capital markets to transaction services
• Written by an author who has spent many years working

The Handbook of Global Corporate Treasury serves as a ready reference for anyone interested in the nuances and practicalities of the complex world of corporate treasury.

Foreword xiii

Preface xv

Acknowledgments xix

Part One: the World of Corporate Treasury 1

Chapter 1: Role of Treasury in a Global Corporation 3

Introducing Treasury Leadership 4

Organisation Structure and Responsibilities 6

Treasury Functions and Responsibilities 10

KPIs and Deliverables 15

A Day at the Office—What Does the Treasurer Do? 17

Summary 19

Chapter 2: Treasury Design 21

Key Elements of Treasury Design 22

Introducing Centralisation 24

Evolution of Treasury Models 25

Summary 36

Chapter 3: Treasury Culture 37

Qualities 38

General Skills 40

Technical and Work-Related Skills 41

The Many Hats of the Treasurer 43

Summary 44

Chapter 4: Importance of Operations and Control Efficiency 45

Tools 45

Different Offices: Front, Middle, and Back 48

Summary 54

Part Two: Transactions and Cash Management 55

Chapter 5: Account Management and Structure 57

Putting an Account Structure in Place 58

Account Operation and Approaches 62

Rationalising Account Structures 65

Examples of Account Structures Across Sectors 68

Summary 69

Chapter 6: The Movement of Money 71

Money Transfer Mechanisms 71

Domestic Clearing and Settlement Systems 75

Cross-Border Payments and Collections 83

Summary 94

Chapter 7: Netting 95

Introduction and Concepts 95

Netting Implementation 101

Benefits and Caveats of a Good Netting Solution 106

Summary 107

Chapter 8: Liquidity Management Introduction and Float 109

Introducing Liquidity Management 109

Pooling as a Concept 111

Float and Its Causes 111

Summary 121

Chapter 9: Cash Pooling and Efficiency 123

Cash Concentration Structures 123

Pooling Structures 127

Implementation Aspects of Concentration Structures 130

Summary 134

Chapter 10: Cash Flow Forecasting 135

Forecasting in the Context of Liquidity Management 135

Forecasting Methods 139

Summary 143

Part Three: Balance Sheet and Liquidity Management 145

Chapter 11: Liquidity and Working Capital 147

Working Capital in the Operating Cycle 148

Cash Conversion Cycle 149

Financial Supply Chain and Its Potential Pain Points 158

Summary 168

Chapter 12: Financial Strength and Linkages with Liquidity 169

Importance of Company Financials 169

Key Financial Ratios 171

Summary 194

Chapter 13: Sources of Capital 195

Capital Markets 195

Capital Structure 197

Factors in the Capital Decision 199

Debt Capital Markets 203

Equity Capital Markets 205

Summary 211

Chapter 14: Financing the Supply Chain 213

Physical and Financial Supply Chains 213

Different Financing Solutions 215

Summary 225

Chapter 15: Managing Operating Cash and Investments 227

Different Elements of Cash 227

Managing Operating Cash 228

Surplus Cash and Investments 230

Considerations and Aspects of Investment Decisions 230

Investment Process 237

Summary 237

Chapter 16: Credit Ratings and Bank Credit Assessment 239

Credit Ratings 239

Credit Rating Methodology 243

Bank Credit Assessment Process 247

Important Focus Areas and Discussion Points with Banks During Credit Reviews 252

Summary 253

Part Four: Markets and Risk Management 255

Chapter 17: Art and Science of Risk Management 257

Kinds of Risk 257

Classical Definitions 258

Why Manage Financial Risk? 266

Styles of Risk Management 269

Factors Impacting Risk 270

What Does Risk Management Do? 273

Objective of Risk Management 276

Summary 278

Chapter 18: Markets and Risk Aspects of Each Market 279

World of Markets 279

Movement of Markets 287

Summary 289

Chapter 19: Risk Management in Practice: Ensuring the Right IMAGE © 291

IMAGE ^© Methodology 291

Risk Identification 292

Risk Measurement 293

Risk Accounting and Reporting 314

Risk Governance 315

Risk Management Evaluation 320

Summary 321

Chapter 20: Products for Managing Risk 323

Forwards Family 324

Options Family 333

Swaps Family 346

Credit Family 351

Summary 353

Chapter 21: Combining the Products to Manage Risk: Risk Governance 355

Devising Risk Strategy Using Products 356

Using Products to Manage Risk 358

Credit Risk 362

Liquidity Risk: Balance Sheet and Asset-Liability Management 363

Use of Analysis 364

Operations and Technology Risk 367

Legal and Compliance Risk 367

Summary 374

Chapter 22: Risk Management Governance Strategies 375

Key Elements of the Governance Strategy 375

Sample Strategy A 377

Sample Strategy B 378

Sample Strategy c 381

Summary 386

Chapter 23: Operational Aspects: Documentation and Execution 387

Documentation 387

ISDA Framework of Documents 388

Execution 392

Summary 394

Part Five: the Toolkit 395

Chapter 24: Treasury Policy 397

Framework 397

Aspects of Policy Implementation That Need Closer Scrutiny 398

Review 399

Implementational Aspects 400

Summary 401

Chapter 25: Treasury Systems 403

Treasury Management System Background 403

Some System-Related Questions 410

TMS Establishment Process 411

Developments and Standards 417

Summary 423

Chapter 26: Centralisation 425

Rationale for Centralisation 425

Basic Model Design 427

Post-Model Design Stage 429

Barriers to Centralisation 429

Summary 430

Chapter 27: Key Performance Metrics for a Treasury 431

Introducing Performance Metrics 431

Some Criteria for Deciding Performance Metrics 432

Performance Metrics 434

Some Caveats on Metrics and Evaluation 437

Sample Treasury Performance Metrics 438

Treasury Fitness 441

Summary 441

Chapter 28: Banks and Service Relationships 443

Sample Bank Organisation Structure 443

Banking Services and Products for a Corporate Treasury 446

Bank Selection and RFP Process 449

Review Process 449

Service and Relationship Management 454

Summary 456

Chapter 29: Operations and Control Checklist 457

List of Processes 457

Right Control at Treasury 458

Control Checks and Reviews 459

Some Common Causes for Error and Control Lapses 461

Summary 468

Chapter 30: Outsourcing 469

Selection Stage 469

Pre-Implementation 471

Implementation 471

Post-Implementation 473

Summary 478

Chapter 31: Building and Sustaining a Treasury Culture 479

Evaluation 484

Summary 485

Chapter 32: Managing Treasury in Uncertain Times 487

Uncertainty and Its Impact on Treasury Management 487

Triggers and Events 490

Simple Method to Manage Treasury During Times of Uncertainty 491

Summary 493

Glossary 495

Further Reading 505

About the Author 507

About the Website 509

Index 511

Rajiv Rajendra runs Singapore-based Aktrea Capital, a firm that delivers high-quality, cutting-edge training, consulting, and process solutions in the areas of capital markets, treasury, and risk management. His clients include an array of financial institutions, corporations, and funds throughout the Asia Pacific region. Mr. Rajendra has several years of experience with various aspects of corporate and institutional banking—from capital markets to transaction services.

Your complete guide to designing, running, evaluating, and improving a global corporate treasury

In today's increasingly volatile, global business world, corporate treasurers are expected to be fully conversant in an array of core skills, ranging from money management and financial risk management, to raising capital and running balance sheets. Written by one of the Asia Pacific region's most respected experts in the field, The Handbook of Global Corporate Treasury helps to ensure that you are.

Unlike most other books on the subject, which tend to be U.S.-centric, The Handbook takes a fully global perspective. Also unique is its "bottom-up" approach, covering all the building blocks of building and managing a global corporate treasury—including treasury design, account management, cash flow forecasting, risk man-agement, performance evaluation, and much more.

Designed to function as both a primer for new treasury managers and students and a working manual for busy practitioners, The Handbook arms you with everything you need to create a robust treasury management model tailored to the unique financial, structural, and cultural realities of your organization, including:

• A set of powerful tools for designing, managing, and measuring all aspects of your company's treasury function
• Fascinating, instructional case studies and examples from the experiences of CFOs, treasurers, and managers at an array of global corporations
• Illustrations, diagrams, callouts, and boxes, strategically placed throughout, to help teach and reinforce key concepts and thought processes
• Many numerical examples covering the full range of mathematical and statistical aspects involved in running a global corporate treasury
• A companion website featuring all the tools from the book, plus valuable templates that you can customize for your organization

The Handbook of Global Corporate Treasury is an indispensable resource, whether you are a CFO or treasurer of a company increasing its geographic presence, a board member in search of a fresh perspective on your company's treasury processes, an accountant or auditor trying to unravel your client's books, or a new or aspiring treasury manager looking for a quick refresher on core concepts and processes.

Praise for The Handbook of Global Corporate Treasury

"Mr. Rajendra has crafted an insightful look into the operations of a well-run treasury department, with particular emphasis on cash transactions and risk management. Recommended for both the initial formation and ongoing operational review of a medium-to-large corporate treasury department."
—Steven Bragg, bestselling author of Accounting Best Practices

"Rajiv is a talented writer . . . he is able to articulate in a clear and concise manner the role of a corporate treasurer and the functions of a corporate treasury. Many business and banking professionals will find this a must-read with its comprehensive coverage of the treasury's interaction with the rest of the organization."
—Sim S. Lim, Singapore Country Head, DBS Bank

"The challenges faced by corporates the world over are ever increasing as a result of many adverse political, economic, and even natural disasters. In this context, the age old adage of 'Cash is King' and the significant role that the corporate treasury plays is of paramount importance. In this scenario, Rajiv's Handbook of Global Corporate Treasury is both timely and educative.
"The Handbook of Global Corporate Treasury is not only a valuable guide to the corporate treasurer but is a must-read for CFOs as well. The insights provided will enable the realisation of the full potential of the corporate treasury in achieving the strategic objectives of the company."
—Yasantha Dissanayake, Head of Finance, SriLankan Airlines