Finally, an additional control is the use performance measurement. Benchmarks can be set for each type of Treasury activity to ensure that the department is operating at the required level. such benchmarks will need to take recognition of the policy of the company, in particular all approved limits. For investment activities the company might base the benchmark on the London inter bid (LIBID) rate for a stated period, reflecting the required maturity profile of investments. As a last measure, the company should ensure that it has adequate cover for all of its Treasury activities.
The controls covered so far, the identification of Treasury activates, the risks (harga) associated with these activates and the internal controls necessary for managing the function, cannot remove risk (resiko harga) completely, but they can reduce it as much as possible. Reliance must still be placed on the efficiency and effectiveness of Treasury and internal audit, and on the integrity of the Treasury staff. insurance is the back stop. The same has to be said of managing market risk (harga), it cannot be eliminated but it can be managed to within levels acceptable to the company. The two principal components of market risk (harga) faced by corporate are foreign exchange and interest rate exposures.
Foreign exchange exposures can be covered by using hedging instruments, such as forward contracts, covering exposures in line with the hedging policy of the company. However, even if the policy is to hedge 100 per cent of identified exposures, this cannot eliminate risk (resiko harga) entirely. For instance, over what time span are exposures identified and how accurate is the identification process? Covering 100 percent of identified exposures could leave a company over covered or under covered, if exposures of not materialize in line with the forecasts. Furthermore the company will not know the precise hedging profile of its major competitors. If competitors have decided not to hedge their currency receivables, and the currency strengthens, they will make a windfall gain which could be taken top profit or used to discount the product. The company also has to address economic exposures such as the strategy its competitors are taking in sourcing their raw materials.
Currency options would be away of overcoming some of this uncertainty, but at a cost. For the payment of a premium, the holder of the option has the right but not the obligation - in contrast to forward contracts - to buy or sell an agreed amount of currency at a fixed rate over given period of time. The premium payable is depended on the time until expire of the option, price (harga), interest rate differentials between the two currencies and the volatility of the currency. Volatility is the most important factor in determining the premium. The advantage of the option is that the upside profit potential is retained, though at the cost of the premium. There are a variety of derivative products available in the market which reduce which reduce the premium payable, but which reduce the profit potential.
Similar issues face the corporate in managing its exposure to interest rate risk (resiko harga). If the company is risk (resiko harga) averse, borrowing will be at fixed rates. However, such a stance cold leave the company locked in at unfavorable rates. If it wishes to be less risk (harga) averse, it will take a view of future rates and choose interest periods accordingly. Again, a variety of products is available in the market to assist the company in managing its exposure, but flexibility will only come at a price (harga). authority for carrying out the management of risk (harga) should be clearly delegated by the board to the Treasury department, together with implementation of the necessary controls and management reporting back to the board.
The key issue facing the board in respect of Treasury activities has to be that of achieving control. This will entail identifying activities and risks (harga), setting policies covering these areas, after due recognition of the company's appetite for risk (resiko harga), and ensuring that there are adequate operating procedures and reporting requirements. This is the only way to avoid unpleasant and costly surprises. The board should recognize that risk (harga) cannot be totally avoided, but should take steps tonsure that risk (harga) is managed in accordance with the company's willingness and ability to accept it. The desire for increased profitability can force the company and the Treasurer to take additional financial risks (resiko harga) and to pursue aggressive strategies. The mistake is to pursue sophistication without having the basic controls in place. ***
The controls covered so far, the identification of Treasury activates, the risks (harga) associated with these activates and the internal controls necessary for managing the function, cannot remove risk (resiko harga) completely, but they can reduce it as much as possible. Reliance must still be placed on the efficiency and effectiveness of Treasury and internal audit, and on the integrity of the Treasury staff. insurance is the back stop. The same has to be said of managing market risk (harga), it cannot be eliminated but it can be managed to within levels acceptable to the company. The two principal components of market risk (harga) faced by corporate are foreign exchange and interest rate exposures.
Foreign exchange exposures can be covered by using hedging instruments, such as forward contracts, covering exposures in line with the hedging policy of the company. However, even if the policy is to hedge 100 per cent of identified exposures, this cannot eliminate risk (resiko harga) entirely. For instance, over what time span are exposures identified and how accurate is the identification process? Covering 100 percent of identified exposures could leave a company over covered or under covered, if exposures of not materialize in line with the forecasts. Furthermore the company will not know the precise hedging profile of its major competitors. If competitors have decided not to hedge their currency receivables, and the currency strengthens, they will make a windfall gain which could be taken top profit or used to discount the product. The company also has to address economic exposures such as the strategy its competitors are taking in sourcing their raw materials.
Currency options would be away of overcoming some of this uncertainty, but at a cost. For the payment of a premium, the holder of the option has the right but not the obligation - in contrast to forward contracts - to buy or sell an agreed amount of currency at a fixed rate over given period of time. The premium payable is depended on the time until expire of the option, price (harga), interest rate differentials between the two currencies and the volatility of the currency. Volatility is the most important factor in determining the premium. The advantage of the option is that the upside profit potential is retained, though at the cost of the premium. There are a variety of derivative products available in the market which reduce which reduce the premium payable, but which reduce the profit potential.
Similar issues face the corporate in managing its exposure to interest rate risk (resiko harga). If the company is risk (resiko harga) averse, borrowing will be at fixed rates. However, such a stance cold leave the company locked in at unfavorable rates. If it wishes to be less risk (harga) averse, it will take a view of future rates and choose interest periods accordingly. Again, a variety of products is available in the market to assist the company in managing its exposure, but flexibility will only come at a price (harga). authority for carrying out the management of risk (harga) should be clearly delegated by the board to the Treasury department, together with implementation of the necessary controls and management reporting back to the board.
The key issue facing the board in respect of Treasury activities has to be that of achieving control. This will entail identifying activities and risks (harga), setting policies covering these areas, after due recognition of the company's appetite for risk (resiko harga), and ensuring that there are adequate operating procedures and reporting requirements. This is the only way to avoid unpleasant and costly surprises. The board should recognize that risk (harga) cannot be totally avoided, but should take steps tonsure that risk (harga) is managed in accordance with the company's willingness and ability to accept it. The desire for increased profitability can force the company and the Treasurer to take additional financial risks (resiko harga) and to pursue aggressive strategies. The mistake is to pursue sophistication without having the basic controls in place. ***
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