ACT Smart Cash Management Conference roundup

Everyone’s familiar with the saying ‘too much of a good thing’ but when it comes to looking after the lifeblood of an organisation, its cash, is it true? Well no, I don’t happen to think so. The ACT’s recent Smart Cash Management Conference 2018 rather made my point. Exciting start to #smartcash18 with opening remark from Chair Peter Matza @actupdate — Bandhu P. Das (@ibpdas) March 14, 2018 Can you have too many smart people working through a range of workshop problems on international cash management, sharing experiences and offering innovative ideas and solutions? Doubt it. Can there be

Currency devaluations – what should the treasurer do?

There has been a lot of comment in the press recently concerning the topic of how the movement of exchange rates can influence economic growth in an economy.

In broad terms a country with a weak currency should be more competitive compared to one with a strong currency, mainly down to lower labour costs. Accordingly a weak currency should boost exports and hence economic growth, something which almost every country seeks. As a result governments may adopt policies designed to weaken their currency and so provide competitive advantage.

Manipulation of markets and manipulation of accounts

The press is full of issues around the manipulation by Barclays Bank of their input into LIBOR calculations. They did this to seek advantage to themselves and sometimes to help out some key contacts. The behaviour has been described variously as criminal, illegal or deceitful. Whatever describes it best, the damage done to the reputation of the bank has been high and this must spread to the reputation of other banks, both in the City of London and elsewhere. Employees move relatively freely between banks and while many banks and their employees have very high integrity, this kind of behaviour

Bank mandates

Older treasurers (and possibly younger ones) will recall the days when a bank mandate for a company was a fairly simple affair. There would be panels of signatories and payments were controlled usually by the seniority of the staff. Senior managers gained confidence that they had the final word on cash leaving the firm. That confidence was probably misplaced. Many individuals at different levels can bind the firm with purchase orders, and in fact control should be at that level rather than the actual payment authorisation. Dealing mandates were rarely used; dealers at banks usually had a personal relationship with

Use and misuse of derivatives

Treasurers are always learning and always having to deal with change in their own firms as well as changes in technology, financial markets, economies, fashion and convention, among others.

Two case studies are presented in this month’s faculty offering as cases of good and bad treasury management and in each case there are lessons for today’s treasurer looking for value in the financial markets and the reduction of risk in their firm.

Case Study 1

Tax deductibility of interest cost and liquidity

The dangers of excessive leverage – by consumers, financial and non-financial companies, and governments – are commonly referred to by economists and politicians. Sometimes they go on to talk about removing the “perverse” incentive for companies to favour debt over equity: the tax deductibility of interest charges.

Financial economics may tell us that – risk adjusted – the cost of corporate debt is the same as that of corporate equity, other things being equal (no liquidity differences, no taxes, etc. etc.).

Issues around insolvency of your own firm

Business works best when the parties to transactions can deal with each other with no fear of the sudden demise of the other party. It is part of capitalism that businesses fail, and indeed part of globalisation that countries fail too. Therefore we should prepare for it. We are used to credit risk in our trading operations in the form of receivables and the overall customer /supplier relationship, such as dependencies on one or a few customers or one or a few suppliers. We are also now used to insolvency among banks and the faculty for other qualifications this month covers this issue.

Change in the east, and elsewhere

The ACT, partly represented by the author of this spotlight, visited Hong Kong recently and has used the experience to generate material for this article. We are all aware how the centre of gravity of the planet seems to be shifting towards the east, evidenced by debt crises in the western countries, with consistent trade deficits (albeit with notable exceptions), government deficits and heavily ingrained high standards of living which seem almost unsupportable.