UNIVERSITY OF DAR ES SALAAM

UNIVERSITY OF DAR ES SALAAM BUSINESS SCHOOL

DEPARTMENT OF FINANCE

GROUP ASSIGNMENT

COURSE TITLE: TREASURY MANAGEMENT

COURSE CODE: FN 307
FACILITATOR(S): SWAI T (DR) & E MKWIZU (DR)

PARTICIPANTS REG NO PROGRAMME

MREMA RONALDO G 2018-04-02831 B COM IN BANKING AND FINANCIAL
SERVICES.
MOHAMED RAMADHANI Y 2018-04-02904 B COM IN FINANCE.
MBEDULE TYSON SIMPLE 2018-04-10137 B COM IN BANKING AND FINANCIAL
SERVICES.
JOHN JASCO FRANSIC 2018-04-07838 B COM IN BANKING AND FINANCIAL
SERVICES.
1.0 INTRODUCTION
The aftermath of the 2008 financial crisis has brought about the adoption of various strategies by various
actors including corporate entities, banks (investment, commercial), financial companies, fin techs
companies and Central Banks in trying to improve financial management, increase competition and
improve financial regulations. This has led to trends and development in various aspects of finance,
investments and banking.

This paper focuses on some of the current developments that affects the treasury function. The paper
focuses on catalysts of development in which treasurers should consider in formulating different treasury
strategies that can improve the effectiveness and efficiency in the performance of treasury functions.

1.1 EMERGENCE OF CRYPTO ASSETS;

Crypto currency is a broad term covering all assets stored on distributed ledgers. This includes crypto
currency as well as non-currency assets such as security tokens and utility tokens. The treasury functions
include investment management, whereas money is committed to different kind of assets with the
expectation of returns. The emergence of crypto assets offers treasurers new investment avenues to include
in their investment portfolio. Crypto assets should be considered because of the following factors:

• Crypto assets offer unparalleled returns; that is organizations can have small portion of investment in
crypto assets but generate abnormal returns e.g., Bitcoin increased by over 300% in 2020
• Crypto assets are marketable; most people are aware of crypto currency, with total crypto market cap
standing over 1 trillion dollars. Much of the new demand is coming from large institutions such as
MassMutual, that announced in December that it had bought 100 million dollars’ worth of BTC for its
general investment portfolio
• There are additional yield-generating opportunities through ‘staking’ and ‘lending’ in decentralized
financial pools example (DeFi) pools. Staking involves using your coins to help validate transactions
on the network, for which you are rewarded with additional coins.

Further since investment in crypto assets is very risky, it is advised for institutions to view its volatility in
a portfolio context, rather than as a stand-alone asset.

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1.2 PREPARING FOR THE IBOR (INTER BANK OFFERED RATES) - LIBOR AND
EURIBOR TRANSITION;
Given the fact that LIBOR will be discontinued by the end of 2021, treasurers need to think about when
to start using the new ARFR (alternative reference rate) indices for their own business, when to start
offering new ARR products to clients, when to start the transition of bank positions away from LIBORs,
and how to deal with new LIBOR business prior to the end of 2021.

Treasurers should start reviewing the effects on each of the balance sheet positions to be able to understand
the impacts and to be able to develop a strategy for the transition. Specifically, institutions with no access
to foreign liquidity might have very price sensitive cross-currency positions where small changes can lead
to significant profit and loss (P/L) swings and should therefore do a careful review.

Large impact should be expected for derivatives where the International Swaps and Derivatives fallback
is triggered. In such cases, an IBOR reference rate is replaced with an ARR, adjusted with a benchmark
spread calculated from historical IBOR vs ARR spread. To avoid legal risks, firms need to develop a
strategy specifically for LIBOR / EURIBOR transactions in the next two years, where both benchmarks
will still be available, and need to make sure that appropriate fallbacks are defined.

Finally, overnight rates from ARRs are available one day later than currently. The operational platform
needs to be adapted in order to embrace the T+1 settlement of the rates and subsequent calculation of
interest payments. The data flow will change, thus impacting fixing cycles of contracts and collaterals as
well as payment and report generation.
1.3 INCREASING TREASURY ROLE IN COMMODITY RISK;
Commodity prices have retained their high volatility status throughout the past year, and with markets
pricing in a robust recovery punctuated by concerns over COVID variants and vaccine distribution, we
expect such volatility to remain a fact in 2021. Treasury teams are increasingly engaged with procurement
to identify ways in which financial hedging can blend with supplier contracts and purchase agreements in
order to provide greater forecasting certainty for corporates.

Operational hedging programs for commodities will often include a wider range of products and strategies
than operational FX programs to address the physical nature of the asset class as well as program
objectives that may require a more dynamic approach. Market conditions have triggered many commodity
hedgers to re-evaluate product selection and alignment with risk management objectives. The treasury
function should establish structures and policies that closely tie in with this commodity risk perspective,
as they are already responsible for monitoring and hedging an organization’s FX and interest rate risk.

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Treasury can leverage these policies to easily gain a centralized view of the complete economic exposure,
taking advantage of economies of scale and natural hedging opportunities.

1.4 OPEN BANKING REVOLUTION;

Open banking (open bank data) is a practice of sharing information electronically. It is a model in which
banking data is shared between two or more affiliated parties to deliver and enhance capability to the
market place. It’s a secure way for a customer to have more control over money and other financial data.

Open bank revolution is a great opportunity to help improve treasury functions such as; cash management
through facilitating real time payments and investment management where third-party companies
(institutional investors) will have a wider access to information for analysis.

Corporate treasurers and finance teams will find open banking particularly useful for real time accounts
to support faster payments, reduce cost and improve liquidity. Further, cash concentration strategies can
be improved since open banking uses APIs technology giving bank customers a real time connection with
their banks, providing an immediate and accurate picture of all their accounts and movements within them.

1.5 DEVELOPMENT OF DIFFERENT PROFESSIONAL QUALIFICATIONS;

Performing treasury functions more efficiently and effectively there is a need for skilled and trained
people. This has triggered the development of treasury qualifications programs. These qualifications set
standards of professionalism and integrity in the treasury world and set the global benchmark for treasury
excellence through internationally recognized qualifications. The qualifications include:
• Certified treasury professional (CTP) offered to individuals who are experienced in cash management.
It is provided by The Association of Finance Professionals (AFP).
• Association for Corporate Treasurer offers;
o Treasury Qualifications Pathway, this includes: Certificate in Treasury Fundamentals (CertTF),
Certificate in Treasury (CertT), Diploma in treasury management (AMCT), Advanced Diploma in
Treasury Management.
o Cash Qualification Pathway, this includes: Award in International Cash Management (AwardICM),
Certificate in international Cash Management.

These qualifications are delivered online through the ACT learning academy study site.
Most important trend right now is on ACT digital credentials. ACT students now receive a digital
credential on successful completion of ACT qualifications. This is in the form of a badge and where
applicable, a digital certificate. ACT started issuing digital badges on March 2021.

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It is an imperative that treasurers seek these qualifications as they are highly demanded in the market and
also help increase their efficiency.

1.6 TIGHTENED FINANCIAL REGULATIONS AND SUPERVISION ON TREASURY

FUNCTIONS
Financial regulations and supervisions have great roles in the Banking and Financial Institutions. The
presence of various situations including the 2008 Financial Crisis have brought about the need for
tightened financial regulation and supervision. These regulations will (and have) redefine(d) the treasury
function in aspects such as cash management, investment management among others.

Basel II & Basel III Accords. The Basel Committee on Banking Supervision in 2004 provided Basel II
that was centered around improving three key issues; minimum capital requirements; supervisory
mechanisms and transparency; and market discipline. Later in 2010, after the 2008 crisis, Basel III was
introduced and came along with strengthened minimum capital and the introduction of various capital,
leverage and liquidity ratio requirements. The Basel(s) generally affects bank treasurers as banks would
have to keep more money, which could potentially mean funding gets more expensive and there is less
around for the least attractive. More devastating the Basel III is expected to make banks rethink their
cross-border investments and make them more concentrated to local markets (renationalization). This
would tend to reduce the globalization benefits of banks, and lead to a fall in competition and services/rates
for treasurers.

International Financial Reporting Standard (IFRS) 9. Similar to Basel II, the IFRS 9 is born out of
necessity as a result of the global financial crisis of 2008. IFRS 9 is a replacement of the IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 deals with the accounting for financial instruments.
It contains three main topics: classification and measurement of financial instruments, impairment of
financial assets and hedge accounting. Generally, the IFRS 9 allows companies to apply hedge accounting
more broadly to manage profit or loss mismatches. For treasurers, their role has been made larger by this
standard as credit risk on commercial counterparties will now be more in line with the current view on
financial counterparty risk. The IFRS 9 imposes a much more proactive credit risk methodology, moving
from an incurred loss to the expected loss approach with a three-stage model. The IFRS 9 has allowed
more instruments to achieve hedging accounting (including FX forwards, options, FX currency swaps,
among others), giving treasurers opportunities to better assess risk. On the downside, treasures under the
IFRS 9 may not be able to de-designate hedges unless the risk management objective itself changes.

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1.7 EFFECT OF THE COVID-19 PANDEMIC ON TREASURY FUNCTIONS;
Economic activities worldwide have slowed down, as its billions plus population, practices social
distancing during the third phase of the COVID-19 pandemic. As a result, companies are either currently
experiencing or anticipating significant constraints on cash and working capital, including potential
liquidity challenges.
Generally, the treasury function will face a number of challenges mainly including limitations on areas to
source funds. The COVID-19 pandemic forces treasurers to consider the generation of cash from outside
their countries. Countries like China, Spain, Italy and Australia have taken action to protect themselves
from further spread of the disease, simultaneously limiting investors movements across countries. This
forces treasurers to rethink domestical investments and financing.
The specific effects of COVID 19 (and relevant questions for treasurers) on the treasury function would
include;
• Liquidity. How will the treasurer ensure liquidity amidst the pandemic? How will the treasurer ensure
that there are no disruptions on the organizations ability to forecast cash flows and manage resulting
currency cash flows?
• Governance. What revisions will be required to the treasury policy to limit the impact of the pandemic?
• Counterparty risk management. What will be the effect of the pandemic on investment strategies,
existing counterparty risk and investment management policies?
• Currency exposure. What impact would the current pandemic have on the existing hedging
programmes and activities? What will the impact be if there is significant disruption, or volatility in
exchange rates, on the supply chain, customers and margins?
• Funding. How do the uncertainties associated with COVID 19 impact the current financing
negotiations or the ones that require negotiations in the next 12 to 18 months?
• Regulatory regime. What will the treasurer do if the capital controls were imposed to restrict
fungibility for cross border type payments or deductibility for tax purposes?
It is evident that all these questions need to be answered by treasurers. The answers may vary but what is
definite is that treasurers would most likely have to refine their practices/function in order to adopt to the
current situation.
1.8 CORPORATE MERGERS AND ACQUISITION (M&A) OUTLOOK
Business leaders expect huge growth in the global M&A market in the near future. An increase in M&A
activity will likely require corporate treasurers to manage the funding and liquidity needs of a more
complex organization and establish integrated operations.

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1.9 THE FUTURE WORKPLACE – IMPROVING ENTERPRISE INTEGRATION
Automation offers great potential for driving transformation in an organization: from cost savings and
increased delivery speed, to new operating models, and higher value activities from employees.
Organizations should focus on getting automation right to position the treasury function as the custodian
for fully integrating the finance function with the core business. This can be supported by human and
machine collaboration. If the right technology is adopted, without the right employees to automate such
technology, then it would be useless. Therefore, the emphasis on aligning the human and machine in an
enterprise is very necessary in improving the treasury function.

1.10 LEVERAGING TREASURY ANALYTICS

In an ongoing era of risk and uncertainty, insufficient identification, monitoring and management of
market price risks can result in volatile financial results, financial loss and reputational damage. The
treasury function is uniquely positioned to address these risks by leveraging analytical tools. This helps
protect assets, inform business decisions, unlock cash, finance the business and invest cash.

1.11 EVALUATING SPECIALTY TREASURY FUNCTIONS

The treasury function is increasingly taking on new responsibilities, such as establishing payment entities,
factoring receivables, or managing benefit plans and real estate portfolios. In this situation, it is critical to
identify opportunities to improve the value the function can create, and work towards establishing the
necessary capabilities.

1.12 TRANSFORMING TREASURY OPERATIONS

It is important to establish a robust organizational structure with a clearly defined and forward-looking
governance model. Several strategic roles could be adopted by the treasury department, which includes
moving away from acting as a cost center and becoming a value adding service center, improving working
capital management, and implementing automation to make the transaction process more efficient.
Organizations continue to pursue strategic transactions to enter new markets, expand product lines,
rebalance business portfolios, among others. Treasury functions are increasingly involved in such
activities. This requires a combination of treasury technical knowledge, experience in these issues.

2.0 CONCLUSION
The strategic importance of the treasury management function has increased steadily over the past few
years. As organizations grow in significance, they are also having to respond to the increasing pace of
disruptive change. In such environment it is crucial to have a scalable and clearly defined target for the
corporate treasury function, as well as forward looking governance structure

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3.0 REFERENCES
ACT (2021). Qualifications. Accessed On: 15th May 2021. Retrieved From:
https://academy.treasurers.org/

Fuser K (2019). Is your treasury function fit for the future or fashioned in the past? Accessed On: 15th
May 2021. Retrieved From: https://www.ey.com/en_gl/assurance/is-your-treasury-function-fit-for-the-
future-or-fashioned-in-the-past

Pritchard J (2020). What Open Banking Is and How It Will Affect You. Accessed On: 15th May 2021.
Retrieved From: https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-
4173727

PWC (2020). COVID 19: What could it mean for your treasury? Accessed On: 15th May 2021. Retrieved
From:https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=
2ahUKEwiowJGdyuHwAhXKzoUKHWBqBtoQFjABegQIAxAD&url=https%3A%2F%2Fwww.pwc.c
om%2Fmy%2Fen%2Fassets%2Fpublications%2F2020%2Fpwc-covid-19-what-could-it-mean-for-your-
treasury.pdf&usg=AOvVaw3tlHWQubbmB9iJHyclemij