Treasury Management

Concept of International Treasury management

International treasury management entails the adoption of business strategies that facilitate maximum utilization of an organization’s finances in the global market. It evaluates concepts such as variations in regulations, foreign exchange, interest rates, tax and other aspects of cash and debt management, which arise due to the oversea location of a business entity, transactions in foreign currency, and other aspects relating to political and business environments (Cooper, 2004). Treasury personnel need to establish systems that minimize risks associated with commercial contracts, financial stability and political and economic factors concerning offshore operations. Such systems provide appropriate approaches concerning the derivation of optimal benefits form an offshore business entity.

Treasury personnel undertake the evaluation of the political, economic and regulatory aspects that may pose negative effects on the operations of an offshore entity. In this regard, treasury management entails considerations relating to unstable economies and governments during the planning of treasury systems. This enables an organization to adopt measures that provide significant levels of cushioning against various risks related to a certain offshore entity. The diversity of regulatory practices in different countries has significant effects on the international operations of an organization and thus requires incorporation in an organization’s treasury system. Crucial regulatory practices include labor laws and employment practices, which affect the hiring of local staff.

Various aspects of tax considerations such as tax structure and incentives concerning foreign companies affect the treasury systems of an organization with offshore entities. Tax implications necessitate the treasury personnel to decide on whether the setting up of an offshore entity will adopt the residence or non-residence approach. This is due to various effects on tax assessment, transfer of funds and aspects of banking. Setting up offshore operations in a country offering considerable tax incentives is beneficial to an organization.

Currency consideration is another crucial aspect in international treasury management. The major consideration is the currency that the offshore entity will primarily use in various operations. In this regard, an organization adopts the functional currency depending on the flexibility of banking infrastructures and regulations in the host country. Another aspect of currency consideration is currency stability. In countries where risks of currency devaluation are high, it is advisable to hold accounts in more stable currencies.

Types of system followed in developed markets

Developed markets describe countries characterized by stable economies and thus offer safer investment opportunities compared to developing markets. In this regard, such countries have systems that facilitate effective allocation of resources in the economy through aspects such as the allocation of investment funds, regulation on household expenditures and diversification of risks (Battilossi & Battilossi, 2010). This approach creates a connection between financial development and fiscal structures that are crucial to economic growth. Financial systems constitute of financial markets, financial intermediaries, financial instruments and financial institutions. Financial markets and financial intermediaries work in conjunction with one another to channel funds between borrowers and lenders. Financial markets comprise of debt and equity markets, primary and secondary markets, over-the-counter markets and money and capital markets.

 Financial intermediaries play a crucial role concerning various aspects of indirect funding. In this regard, they address issues relating to costs of transactions and economies of scale. Furthermore, financial intermediaries help to diversify risks relating to indirect borrowing or lending. Financial intermediaries in the US include Banks, contractual saving institutions and investment intermediaries. Sophisticated banking infrastructures in developed markets play a crucial role in capital mobilization. They identify and fund entrepreneurs concerning innovations, which is crucial to the stabilization of the economy. Promoting innovation is vital concerning the sustenance of growth of an economy.

Financial instruments in the US include money market instruments such as US treasury bills, commercial paper, banker’s acceptances, repurchase agreements, federal funds and Eurodollars. Another financial instrument is the capital market, which constitutes corporate stocks and bonds, US government securities and bank commercial, and consumer loans (Battilossi & Battilossi, 2010). While money market instruments are short-term debt instruments, capital market instruments are either intermediate or long-term debt instruments.

Treasury management system in the Commercial Bank of Dubai

The adoption of SunGard as a system for treasury management by the Commercial bank of Dubai depicts the importance of effective treasury operations. The diversity of the operations relating to this bank exposes it to numerous risks relating to operations, liquidity, interest rates and credit risks. SunGard enables the bank to monitor different aspects of interest and foreign exchange rates in its various branches. This was considerably beneficial especially concerning the management of treasury operations for the bank’s branches outside Dubai. The SunGard comprises of two major components. The first component is the AvantGard, which focuses on the management of treasury operations in the aspect of front-to-back office tasks. This component provides a framework to monitor cash flow and highlights risky factors concerning certain operations. In this regard, the Commercial Bank of Dubai can adopt control measures relating to perilous transactions. The second component, the BancWare, centers on the management of various aspects relating to assets liabilities (Commercial Bank of Dubai Selects SunGard for Integrated Risk Management, 2007). The interplay between these two components creates a system that integrates various aspects of risks and treasury management. The data obtained from treasury operations and other related banking systems is input into BancWare to facilitate the evaluation of various liabilities. This synergy creates an effective Asset Liability Management (ALM) tool that facilitates the minimization of instances of mismatch between assets and liabilities. By eliminating risks associated with various operations of the Commercial Bank of Dubai and streamlining the bank’s treasury operations, SunGard has considerably boosted trade through the creation of a framework that allows the monitoring and evaluation of data.