AFP Learning System Treasury Module One: The Corporate Treasury Management Function Module Two: Corporate Financial Management Module Three: Working Capital.
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AFP Learning System Treasury Module One: The Corporate Treasury
Session 1, Module One: The Corporate Treasury Management Function Chapter 1:
The Role and Organization of Treasury Management Chapter 2:
Financial Regulatory Environment
Chapter 1: The Role and Organization of Treasury Management
Outline: Introduction to the Study of Treasury
Management The Role of Treasury Management Finance and Treasury Organization Treasury/Finance Organizational Structure Corporate Governance Ethics and Accountability AFP Standards of Ethical Conduct
For companies publicly traded on a U.S. public exchange, the Sarbanes-Oxley Act (SOX) makes which of the following personally responsible for the accuracy of financial statements?a) Treasurerb) Chief financial officer (CFO)c) Controllerd) All of the above
What are six primary responsibilities of the treasurer?
Answer:Managing overall financial riskArranging external financingManaging relationships with banks and other financial institutionsOverseeing day-to-day liquidity and cash managementInvesting for the short- and long-termDeveloping and implementing treasurypolicies and procedures
Role of the Board of Directors in Treasury Operations General authority for treasury operations Approve business policies, major initiatives
and business contracts Board grants authority to:
Open, close and modify bank accounts Establish borrowing facilities Oversee investments Issue debt and equity securities Devise, implement and execute risk management
strategies through board-approved policy statements
• Examining and comparing core activities within/across an industry or functional area for the purpose of identifying best practices
• Example: Basic staffing levels
Reengineering
• Radical redesign of a particular business process with the goal of continuous improvement
• Example: Application of Six-Sigma concepts to treasury area
Outsourcing
• Utilizing a third party to perform all or part of a core function
• Example: Payroll processing
Business Transitions: Mergers, Acquisitions and Reorganization Merger
When two companies combine, with one company ceasing to exist as legal entity. Combined assets are operated under surviving company. Usually consensual.
AcquisitionWhen one company buys a majority of voting shares of another corporation. May be friendly or hostile.
ReorganizationIn the event of severe financial distress, a company may face bankruptcy, which could result in the reorganization or liquidation of the company.
Why is treasury sometimes set up as a cost center and other times as a profit center? Which is more common, and why?
Answer: A cost center is the most common approach because treasury is seen as a support function.
A profit center is used in companies specializing in global finance, trade or risk management; they require use of derivatives and should be able to generate income from hedging and/or speculation.
What are the advantages and disadvantages of centralized and decentralized control of the global treasury management organization?Answer:Centralized control
Advantages—Control, economies of scale and lower operating costs
Disadvantages—Little autonomy for field office personnel
What are the benefits of utilizing in-house banks in international treasury management?
Answer:The primary benefit is a reduction in overall banking costs by aggregating many small transactions into fewer larger ones. An in-house bank can also manage five principal international treasury management solutions—investments/debts, netting, pooling, re-invoicing and centralization of FX exposures.
Company function that deals with the disclosure or release of information to bond- and stockholders in a timely manner; activities mandated to support market regulatory requirements.
Responsibilities include earnings releases and forecasts, annual/quarterly reports, press releases, legal disclosures.
Investor relations department is a company’s only interaction with the stock market, over which it has full control.
• Continue to acquire appropriate level of professional knowledge and skill in finance.
• Perform professional duties in good faith and in accordance with technical, legal and regulatory practices, as well as the letter and spirit of the law in the field of finance.
Confidentiality
• Maintain confidential information acquired in the course of professional activities and disclose such information when legally obligated to do so.
• Refrain from using or appearing to use confidential information for unethical or illegal advantage either personally or through third parties.
• Practice honesty and accuracy in all dealings without engaging in any activity that would prejudice the ability to carry out professional responsibilities competently and fairly.
• Avoid conflicts of interest or the appearance thereof.
• Refrain from abusing the financial systems and markets.
• Disclose fully all relevant information that could reasonably be expected to influence business dealings.
• Certified Cash Manager (CCM) and Certified Treasury Professional (CTP) designations may be used only if active.
Chapter 2: Financial Regulatory EnvironmentOutline: General Regulatory Environment Primary Regulators and Standard Setters of
Global Financial Markets U.S. Regulatory Environment U.S. Federal Legislation The Uniform Commercial Code (UCC) The Employee Retirement Income Security Act
(ERISA) (1974) U.S. Bankruptcy Legislation Federal Liquidity Programs
Which of the following regulatory approaches used to monitor and manage the safety and soundness of the banking system carries a moral hazard for both depositors and bankers?a) Setting minimum capital levels required of banks
operating in the country (ratio of capital to at-risk assets and tiered capital)
b) Ensuring proper investment policies and diversification (impairment of capital rules)
c) Deposit insurance for investors’ funds held by the bank
d) Regular monitoring and surveillanceAnswer: c. Depositors may not investigate a bank’s creditworthiness; banks may undertake more risk.
Which component of the Fed has the most impact on monetary policy, and why?
Answer:The Federal Open Market Committee (FOMC) because it oversees the buying and selling of T-bills, T-notes and T-bonds. The FOMC’s sale of government securities reduces the money supply and credit; redemption causes the opposite.
Discussion QuestionWhich of the following is true?a) FinCEN enforces counter-money laundering
legislation (e.g., the Bank Secrecy Act) and provides intelligence and analytical support to law enforcement agencies to build investigations and plan new strategies that combat money laundering.
b) The FDIC provides deposit insurance for banks and thrifts and acts as a trustee for failed banks but does not supervise any depository institutions.
c) The Dodd-Frank Act phased out the “dual nature” of the U.S. banking system.
Session 2, Module One:The Corporate Treasury Management Function
Chapter 2: Financial Regulatory EnvironmentOutline: General Regulatory Environment Primary Regulators and Standard Setters of
Global Financial Markets U.S. Regulatory Environment U.S. Federal Legislation The Uniform Commercial Code (UCC) The Employee Retirement Income Security Act
(ERISA) (1974) U.S. Bankruptcy Legislation Federal Liquidity Programs
Gramm-Leach-Bliley Act (1999) Permits the creation of financial holding
companies (FHCs) Establishes the Fed as the primary
regulator of FHCs Allows easier entry by foreign banks Placed CRA rating stipulations on
mergers of bank holding companies with insurance or securities firms
Required financial institutions to establish and regularly disclose privacy policies; prohibited credit card and account numbers from being shared with third-party marketers
Implements Federal Reserve Act of 1913; imposes uniform reserve requirements on all depository institutions with different levels of reserves for different types of deposits
Regulation E
Implements EFTA (1978); defines rights and responsibilities of parties using consumer-related EFTs and provides consumer protection for ATM, ACH and credit card transactions
Regulation J
Implements check collection and settlement provision of Federal Reserve Act (1913); establishes check collection and settlement procedures, duties and responsibilities
Regulation QProhibits depository institutions from paying interest on corporate demand deposit accounts; repealed by Dodd-Frank Act
Protects consumers from unexpected credit card rate increases; prohibits issuing credit card to consumer under age 21; requires consent before charging over-limit fees; limits high fees; bans creditors from two-cycle billing method; prohibits allocating payments to maximize interest charges
Regulation BB Implements CRA
Regulation CC
Establishes rules designed to speed the collection and return of checks; establishes endorsement standards for banks and companies to follow in depositing and clearing checks; imposes the same return procedures that apply to checks to payable through drafts
Discussion Question
Match each tax with its correct use.a) Foreign tax credit
Complete the following Chapter 7 bankruptcy priority of claims.1. Specific property pledged (e.g., lien)2. Trustee’s costs3. Pre-trustee involuntary liquidation expenses4. Wages earned three months prior to filing5. Unpaid benefit contributions owed six months prior6. Unsecured claims for customer deposits7. Taxes due8. Unfunded pension plan liabilities up to 30%
of book value of common/preferred equity9. General unsecured creditors10. Preferred stockholders (paid up to par value)11. Common stockholders (receive remaining