WHAT IS TREASURY?

noun, plural treasuries

The funds or revenue of a state, institution, or society.
(in some countries) the government department responsible for budgeting for and controlling public expenditure, management of the national debt, and the overall management of the economy.
Place or building where treasure is stored.
A store or collection of valuable or delightful things.

Source: Oxford Dictionary

WHAT IS TREASURY IN A BUSINESS CONTEXT?

Treasury in a business context is a key, specialist function of the finance department.

Treasury involves the management of money and financial risks in a business. The priority is to ensure the business has the money it needs to manage its day-to-day business obligations. It also aims to ensure there is enough cash available to meet future liabilities. To do this successfully, the function analyses the risks that might impact the flow of cash.

By performing these activities, treasury develops successful long term financial strategies and policies for the organisation.

Larger organisations will usually have a variety of departments which could include sales, marketing, operations and production, human resources, research and development, and finance. Treasury is usually a specialist function within the finance department, and works both inside the firm and outside in the wider environment.

To carry out this work effectively, treasury functions need to understand financial markets and the wider economic environment.

TREASURY AND FINANCIAL MARKETS

Financial markets deal in financial assets. This includes the sale and purchase of shares, bonds and foreign exchange or the lending and borrowing of funds. Treasurers frequently need to use financial markets to help manage and mitigate risks.

There are many examples of financial markets:

  • stock markets, which enable the trading of shares
  • bond markets, which facilitate the trading of bonds
  • money markets, which provide short-term debt financing and investment

Physical and virtual markets

Historically, markets were physical locations. Many modern markets are now entirely virtual, with no physical location.

Wholesale and retail markets

Wholesale markets trade in large quantities. Retail markets can be defined as everything which is not wholesale. In a retail market, therefore, trading is in smaller quantities and sometimes by private individuals.

Treasury needs financial markets to safely invest surplus short-term cash. Financial markets are also used to for borrowing money for longer periods. This helps manage the risk of a company running out of money or can help a company get money for expansion.

Because treasury works so closely with the financial markets, it’s important to understand how they work, how the laws of supply and demand apply and what is happening right now that’s causing individual companies to do what they do (microeconomics and macroeconomics).

Over time there will always be fluctuations in production, trade and economic activity. The important thing is that any good period of economic expansion is unlikely to continue smoothly forever. This means that the treasury function needs to stay on top of forecasting, work well with the financial markets and develop robust financial strategies to ensure that an organisation will survive any downturns in the wider economy!