4 Pillars of a Globalized Treasury Policy

4 Pillars of a Globalized Treasury Policy

Transnational Treasury Policy in the Globalized Era

We live in a world that is much more globalized that the world of fifty or even twenty years ago. Rapid advances in communications technology has allowed corporations to expand into multiple markets and across multiple currencies. While the opening of new markets has provided more opportunities for advancement, it has also presented treasurers with more obstacles when setting and managing Treasury Policy. Here are 4 challenges facing Treasurers and strategies for overcoming them:

1. FX Exposure:

Foreign Exchange (FX) exposure is the risk that companies take any time they need to fund operations or accounts in another currency. Any time a company holds a different currency or moves cash, they run the risk of exchange rates shifting and experiencing a negative value impact on their assets. Multi-national corporations need to specifically address these risks in their treasury policy. Options include minimizing the amount of cross-currency transactions to reduce exposure or constructing same-currency funding, but whatever the choice of action is treasuries should be deliberate in setting out policies to manage and reduce risks.

2. Determining Funding Needs:

Ensuring that an organization is funded to the right liquidity is tricky enough in a single economy and currency; these challenges are only multiplied when adding in the factors of multiple currencies, exchange rates, and rates of economic development into the equation. Treasuries should be prepared with comprehensive understanding of the company’s history to determine how to prepare for the future based on historical funding trends. Additionally, they should have data and analytics to predict the expansion and changing needs of the different economies the corporation spans.

3. Dealing with Cash Abroad:

With the complicated tax, regulations, and economic constraints placed on moving cash across borders, treasurers need to be prepared to deal with these challenges. In addition to a sound knowledge of the regulatory constraints on the company, treasury policy should encompass how to best deal with repatriating funds or how they should be used –be it investing in foreign markets, using repatriated cash to buy back stocks, using surplus cash to reduce debts and liabilities, or to stockpile cash offshore as an added security. The modern multinational treasurer will be armed with data and insights to choose between these options.

4. Transactional and Operational Exposures:

Deciding what level of risk a treasury or corporation wants to expose itself to is a foundational part of any treasury policy, but ensuring this policy is carried out becomes exponentially more complex when spread across multiple currencies, countries, and economies. Treasurers should invest significant resources in understanding how their funds are working, what risks they are exposed to (both in transactions and operations), and how to best adjust these policies to meet with the needs and goals of the future.