During the webinar, organised by The Soltesz Institute, the key role of the treasury function in managing payment and banking strategies was discussed, focusing on risk management, cash flow optimization, and hedging tools to protect against market fluctuations. It also emphasized the importance of having a structured treasury strategy to maintain liquidity, prevent disruptions, and navigate currency risks effectively.
Main points:
What is the treasury function A company’s treasury function plays a key role in managing payment and banking strategies. It focuses on ensuring that funds are available when needed, managing cash flow, and addressing financial risks. Effective treasury management helps maintain smooth operations and financial stability.
What is hedging Hedging is an important tool within the treasury function, used to manage risks from market fluctuations, foreign exchange rates, and geopolitical changes. It allows businesses to lock in prices or rates, protecting themselves from sudden market shifts. This is especially important for international companies where currency fluctuations can directly affect profits.
Hedging protects businesses from unpredictable rate changes and goes beyond just exchange rates. Factors like interest rate differentials, central bank policies, and broader economic conditions must also be considered.
Currency fluctuations For companies operating internationally, having a strategy to manage currency risk is essential. Foreign exchange rates can significantly affect profitability, not only through the direct rates but also the factors influencing those rates. Interest rate differences, central bank policies, and global economic trends all contribute to the risks businesses face, and having a plan in place is necessary.
Treasury strategy A structured treasury strategy for managing risks and planning payment and banking operations is critical. A clear plan outlines how to manage funds, when to implement hedging, and what data to consider, allowing companies to make informed decisions. This helps minimize unnecessary volatility and gives businesses the confidence to act when market conditions change, preventing costly mistakes.
Hedging tools Selecting the right hedging tools is another key element of treasury management. Not all companies require complex or expensive instruments to manage risk. Often, simpler options like forward contracts provide adequate protection without the added costs of more advanced tools like options.
Other aspects Treasury management is not just about foreign exchange or interest rate risks. It also involves practical considerations like payment fees, settlement timelines, and liquidity. Delays in accessing funds or unexpected costs can disrupt cash flow and affect operations. Planning around these operational factors ensures liquidity and flexibility are maintained.
A well-functioning treasury operation manages both risks and the overall health of a company’s finances. By carefully evaluating risks, optimizing liquidity, and planning for potential market shifts, businesses can safeguard their payment and banking flows. Those that take a proactive approach to treasury management are better equipped to handle sudden market changes and maintain long-term financial stability.
You can re-watch the webinar here: https://www.youtube.com/watch?v=FRleIsE3Zmc
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