Analysis of the Value Created by a Centralized Treasury Function for a Retail Company
Every international company faces risk from foreign currency exposure. To mitigate them, they use financial instruments to avoid losses in foreign currencies. As there is set of company-specific requirements, this harbors a difficulty: How should the efficiency be measured?
Mumenthaler Philipp Alexander & Stalder Loris Aron, 2020
Bachelor Thesis, A Retail Company
Betreuende Dozierende: Silke Waterstraat
Keywords: Foreign Exchange Risk Management, Corporate Treasury, FX, Hedging, Netting
Our client, an internationally active retailer, is facing such a problem. Currently, a centralized treasury department inside the holding structure manages the foreign exchange risk centrally for the entire group by employing a set of practices and assumptions, so as to review the performance of their current method. In order to do so, alternate scenarios of benchmarking and different hedging rates are analyzed.
For this thesis, desk research into the structure of our client was needed. It provided the oversight required to understand the business and environment in which our client works. Also, aspects of corporate treasury management are found to build a basis for the scenario analysis. The main work in this thesis consists of scenario calculations which were elaborated by the contracting party. They analyze different forms of foreign exchange management in a corporate treasury as well as the expense of such a function.
The conclusion reached in this thesis is that a centralized approach to treasury work is suitable for our client. Furthermore, the analyzed scenarios did not indicate that a change in current practice should occur. Nonetheless, some scenarios analyzed delivered results nearly identical to current practice, which suggests that further research into these scenarios may reveal how the hedging process could be improved. Furthermore, it should be analyzed how the hedging ratio can influence the results and whether hedging for some currencies should be reduced or even discontinued. The results of this thesis do not provide a specific amount of value that is added. However, the findings strongly suggest that the treasury services provided, especially in netting and hedging activities, add significant value to the group as a whole. As the changes in annual results are volatile, it is not possible to reach a stable conclusion concerning the monetary value added. On a final note, the thesis concludes that the centralized treasury function is a vital part in the corporate structure of our client and adds value with its provided services.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Accounting, Banking, Controlling and Finance