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Corporate Treasury- Managing Business Funds

Posted in Finance Articles, Total Reads: 3206 , Published on May 13, 2018

Organisations fuel upon money. Yes! Just like your car needs petrol to run, companies need money to run. And if the company is a Financial Institution, then the raw material for the company is also money. Therefore, there is always a demand for money. To cater to such a requirement, most of the organisations create a division called as treasury that takes care of both the incoming as well as outgoing money. The incoming money comprises of any receivables and the outgoing money may comprise of any payables or expenses.

More often than not, the receivables are due to any asset creation which may include the asset itself and any such margin attached to the asset whereas the payable may be any liability and any interest payable with the liability. The margin which the company thus makes is its gross profit.

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Coming to the main discussion point, i.e. the working of a corporate treasury, it comprises of a liability and an asset division. The purpose of the liability division is to raise working as well as long term funds for the firm and the purpose of the asset division is to invest any surplus fund. The question is how does this thing work? Well, this just works like how you manage the liquidity at your home. The liability group gets the money from different sources of borrowings like commercial papers, non-convertible debentures, external commercial borrowings, banks etc. These are always at a cost. These funds are then deployed to create the assets which will help in creating a margin for the company.


Therefore, in case of a need of liquidity, company will raise short term funds like CPs and bank borrowings and cover the longer term by issuance of NCDs. If there is a surplus of liquidity, meaning, when the funds can’t be directly put in the business of the company, they are invested by the asset division of the company in instruments for shorter duration. Therefore, the company ensures there is no opportunity loss.


These are the roles of the front office of the treasury. There are two more broader divisions which are back office and mid-office. The role of the back office is to ensure that all the paper work and settlement of the deals are done as per the regulatory guidelines as well as policy of the company. The role of the mid-office is to ensure that while executing the deal, all the limits are properly adhered to. The limits can be regulatory as well as internal in nature.


The corporate treasury plays a pivotal role in the functioning of the organisation. The margin of the assets totally depends upon the cost at which the treasury is raising the funds. If the treasury raises long term fixed rate funds during increasing interest rate scenario, then it will have long term impact on the expenditure of the company. Thus, the company may have to continually increase its prices to keep the margin intact. This may lead to their products being uncompetitive as per the price parity. Also, if the company raises short term fixed rate funds in decreasing rate scenario, it may not be a good decision too. Therefore, keeping a view of the interest rates is also an important task of the treasury.


This article has been authored by Naman Mathur

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