## Treasury Management
Meaning: Treasury management encompasses planning, organizing, and controlling funds and working capital to:
- Ensure best use of funds
- Maintain liquidity
- Reduce overall cost of funds
- Mitigate operational and financial risk
Scope: Treasury management mainly deals with:
1. Working capital management
2. Financial risk management (Forex & interest rate management)
Key Objectives:
- Maximize return on available cash
- Minimize interest on borrowings
- Mobilize cash for corporate ventures
- Effective dealing in forex, money & commodity markets
### Functions of Treasury Department
| Function | Description |
|---|---|
| Cash Management | Efficient collection & payment systems, managing surplus, ensuring liquidity |
| Currency Management | Minimize forex risks via matching receipts/payments and forward contracts |
| Fund Management | Plan and source short/medium/long-term funds; forecast future rates |
| Banking | Maintain bank relationships; negotiate interest and forex rates |
| Corporate Finance | Support acquisition/divestment; manage investor relations |
### Cash Management
Cash management deals with managing cash inflows, outflows, and balances to meet payments and invest surplus efficiently.
Objectives:
1. Provide adequate cash to all units
2. Avoid idle funds
3. Invest surplus cash to maximize returns
### The Need for Cash — Keynes' Three Motives
| Motive | Description |
|---|---|
| Transaction Need | Meet day-to-day expenses and debt payments from operational inflows |
| Speculative Need | Hold cash to exploit profitable opportunities that require immediate settlement |
| Precautionary Need | Safety buffer against unexpected/emergency events |