Centralization of Treasury Management

1 Petr Pol k (Chapters 1-11) Ivan Klus ek( chapter 12) Centralization of Treasury Management 2010 Centralization of Treasury Management ISBN 978-966-2965-08-7 By Dr. Petr Pol k and Ivan Klus ek Reviewed by Professor Dirk Swagerman and Professor Ji Pol ch First edition 2010 Printed in Ukraine Published by: Publishing Company Business Perspectives Dzerzhynsky lane 10, Sumy 40022 Ukraine Phone: +38 (0542) 775 771 E mail: Website: Publishing Company Business Perspectives , 2010 Copyright: All rights reserved. Neither this book nor any part of it may be reproduced, stored, advertised, demonstrated, adaptated, rearranged, translated and transmitted in any form or by any means, electronic or mechanical, including photocopying, microfilming and recording without the prior written permission of the Publisher.

2 This also concerns the distribution, disposition, property renting, commercial renting, or any other kind of renting, reprinting, citing, importing or public demonstration. The authors are responsible for the reliability of information which materials published contain. Centralization of Treasury Management 3 About the authors Petr Pol k has been Assistant Professor at the Department of Finance of the Faculty of Economics, V B Technical University of Ostrava, Ostrava, Czech Republic since February 2002. He has conducted Finance courses such as Financial Markets, Insurance, and Financial Management . In 2004 he introduced the Treasury Management course to the Faculty of Economics.

3 The subject has since obtained international recognition with the presence of overseas students from Europe, Middle East, and Asia. Between the years 2005 2009 Petr spent 5 semesters at the Faculty of Business and Enterprise, Swinburne University of Technology, Melbourne, Australia, teaching Financial Management (as a Convenor), Financial Risk Management , and Capital Markets (for Master students, Convenor). In addition, he has given lectures and research seminars at several universities and research institutes in Australia, Belgium, Brunei Darussalam, Canada, Denmark, the Netherlands, and the United Kingdom. Before his academics career he has been involved for 10 years in finance and Treasury , in various senior positions with major corporations in the Czech Republic, such as Moravskoslezsk tepl rny, (Dalkia group) as a Head of Finance and Treasury Department.

4 Between 1993 and 1995 Petr represented interests of Union Banka, as a Member of the Board of Directors in three incorporated companies. Petr graduated from the V B Technical University of Ostrava with in Finance in 1992. He worked as a Researcher with the BC Hydro Power Smart Inc. in Vancouver, , Canada for the period immediately following his graduation. In 1994 he obtained a certificate in Business Administration from the Swinburne University in Australia. He completed his doctoral studies in Finance in 2003. Petr has published more than 30 papers, both in research and professional journals, since 1997. His research areas include corporate finance and Treasury , international finance, and financial markets.

5 He is a member of the Editorial Board of three Finance journals, two based in the United Kingdom, one in the United States. Ivan Klus ek graduated in 1993 from the University of Agriculture in Prague, economic and computer sciences. His career started immediately after his graduation in Agrobanka as a securities dealer. Ivan has an experience as chief securities broker and portfolio manager in several Czech and foreign financial institutions. Since 2006 he has been with Komer n banka in Prague. Ivan is currently working as a team leader in cash Management business in Komer n banka, especially for medium and large corporations. Ivan has attended several trainings and conferences focused on the trends and strategies in the international cash Management .

6 Centralization of Treasury Management 4 Contents chapter 1. Introduction to Treasury chapter 2. Assets and liabilities Assets Liabilities chapter 3. Cash Cash Management Automation of cash chapter 4. Financial risk Why manage financial risk?..22 Principal finance related Management of financial chapter 5. The degree of Treasury Decentralized The risk of decentralized chapter 6. Centralized chapter 7. First phase of Multicurrency Another level of Centralization : in-house The in-house bank and risk chapter 8. Second phase of Cash Cash Real cash Overlay concentration structures cash concentration Notional cash Cross-border cash Multicurrency cash Centralization of Treasury Management 5 Two viewpoints to assess the effectiveness of the cash Pooling Pooling within a holding chapter 9.

7 Third phase of Payment Shared service What else to consider when centralizing the Treasury operations? ..57 chapter 10. Why to outsource? ..58 What to outsource? ..59 Choosing a provider of chapter 11. Regional Treasury chapter 12. Banka s best practices in cash Komer n banka in a Liqudity Management services provided by Komer n 12. 4 End users of the Bank selection process and cash pooling Real cash Real domestic cash Intercompany interest and possible Real cross border cash pooling ..82 Notional domestic cash Notional vs. Real cash pooling a Centralization of Treasury Management 6 Preface David C. Robertson Partner, Treasury Strategies, Inc.

8 This book arrives at a critical juncture in the evolution of Treasury Management . On the one hand, the most sophisticated multinational firms operate highly centralized Treasury units characterized by automation of basic processes and information flows, sophisticated risk Management techniques and highly specialized functional competencies. Banks, solution vendors and industry consortiums such as SWIFT have assisted businesses in optimizing their Treasury units by producing a stream of innovation that has supported Centralization , deepened analytical capabilities and strengthened cash visibility and controls. Best in class Treasury units are creating value not only by optimizing financial return relative to risk, but also by supporting business growth through the acceleration and integration of the financial supply chain.

9 Yet in contrast, many large multinational firms operate Treasury units that remain plagued by incomplete control and oversight over the financial value chain, fragmented information, and incomplete competencies. Furthermore, smaller firms typically lack the technology and people resources needed to optimize Treasury . These gaps in optimizing Treasury are particularly dangerous in today s environment due to tightened credit markets, rapid globalization, the accelerated pace of business, and the unprecedented levels of financial risk present in the markets. Today, more than ever, a well run Treasury can be the difference between financial success and failure. While the need for firms to identify and adopt appropriate Treasury Management organization structures, processes, policies and technologies is more urgent than ever, the formal discipline of Treasury is relatively immature.

10 In comparison to Accounting and Finance, two related fields, the discipline of Treasury Management has received relatively less academic attention. While numerous associations and periodicals are devoted to Treasury and provide valuable insights and knowledge sharing, their work tends to be anecdotal and not subject to the disciplined scrutiny and formal analysis characteristic of academic work. Few academics conduct research in the specific area of Treasury and while most of the major business Universities offer degree programs in Accounting and Finance, few if any major universities offer degree programs focused particularly on the field of Treasury . Against this backdrop, Dr. Pol k is a pioneer, bringing academic discipline to the exploration of Treasury as a field of study.