Section II: Essay and Problem Questions (attempt all questions) (15 Marks) QUESTION 1: In-corporates, treasury overlaps the financial management function, although the former has the more specific focus mentioned, while the latter is a broader field. Analyze treasury management, financial functions of treasury, and decentralized treasury management with its advantages and disadvantages. (3 Marks)

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**Step 1: Define Treasury Management**  
Treasury management involves planning, directing, and controlling an organization’s cash flows, liquidity, funding, and financial risks. Its key focus is to ensure that the organization has adequate liquidity to meet its obligations as they fall due, while optimizing the use of surplus funds.

**Step 2: Identify Financial Functions of Treasury**  
The financial functions encompassed by treasury management include:  
- **Liquidity Management:** Ensuring cash availability for daily operations and unexpected expenses.  
- **Funding and Investment:** Evaluating and arranging various sources of funding, while efficiently investing any surplus funds.  
- **Risk Management:** Identifying and mitigating risks related to interest rates, foreign exchange, and commodity prices using tools like derivatives.  
- **Bank Relationship Management:** Overseeing interactions with banks and financial institutions to secure credit lines and other financial services.  
- **Cash Forecasting:** Preparing estimates of future cash flows to plan for financing needs and investment opportunities.

**Step 3: Explain Decentralized Treasury Management**  
In a decentralized treasury management system, treasury functions are distributed among various business units rather than being centralized in a single treasury department.

- **Advantages:**  
  - **Local Expertise:** Local or regional managers may have a better understanding of their specific market conditions and regulatory environments.  
  - **Faster Decision-Making:** Decisions on cash management and financing can be made more quickly due to the reduced need for central approval.  
  - **Improved Responsiveness:** Business units can promptly address local liquidity needs or market opportunities.

- **Disadvantages:**  
  - **Reduced Control:** With responsibilities spread out, it is more challenging for the central treasury or corporate finance team to maintain overall control and consistency in risk management.  
  - **Inefficient Resource Allocation:** Surplus funds in one unit may not be effectively distributed to cover deficits in another, resulting in suboptimal cash utilization.  
  - **Increased Complexity:** Managing a decentralized structure requires robust communication and coordination, which can lead to operational inefficiencies and increased administrative costs.

**Step 4: Relate Treasury to Broader Financial Management**  
While treasury management specifically focuses on the aspects discussed above, broader financial management includes additional functions such as budgeting, financial planning, and performance analysis. Thus, treasury overlaps with financial management in areas like liquidity and risk management, but financial management has a broader scope that also covers long-term strategic financial planning and capital structure decisions.

$$ 	extbf{In summary} $$: Treasury management is a specialized function that ensures liquidity and risk are managed effectively. Its financial functions include liquidity management, funding, risk management, bank relationship management, and cash forecasting. A decentralized treasury system offers local responsiveness and quicker decision-making but may sacrifice centralized control and efficient resource allocation.
**Treasury Management Explained** *Treasury management* is about handling an organization's money, like making sure there's enough cash for daily operations and investing extra funds wisely. It includes tasks such as managing cash flow, finding ways to get money, and protecting against financial risks. *Financial functions* of treasury management involve: - **Liquidity Management:** Ensuring there's enough cash when needed. - **Funding and Investment:** Securing money from different sources and investing extra funds. - **Risk Management:** Protecting against risks like changes in interest rates or foreign exchange. - **Bank Relationship Management:** Working with banks to get credit lines and other financial services. - **Cash Forecasting:** Predicting future cash needs to plan for financing and investments. *Decentralized Treasury Management* means that treasury functions are spread out among different parts of the company instead of being in one central department. **Advantages:** - **Local Expertise:** Each part of the company can better understand its specific needs. - **Faster Decisions:** Decisions are made quicker without needing central approval. - **Improved Responsiveness:** Can quickly respond to local opportunities or needs. **Disadvantages:** - **Less Control:** It's harder to keep an overall view of the company's finances. - **Inefficient Resource Allocation:** Surplus funds in one area might not be used where needed. - **Increased Complexity:** Requires better communication and coordination, which can be hard. *In comparison to broader financial management*, which includes budgeting and long-term planning, treasury management focuses more on short-term liquidity and risk. So, while treasury is a part of financial management, financial management covers more areas. **Summary:** Treasury management is a specialized part of financial management that ensures the company has enough cash and manages financial risks effectively. Decentralizing treasury can make decisions faster and more responsive but can also make it harder to control and manage resources efficiently.

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