This lesson explores the key risks treasury must manage in its day-to-day operations, focusing on operational and reputational risks.
6.1 The Risks Surrounding the Treasury Function
The treasury function is exposed to multiple risks, including “Credit and Interest Rate Risk, Liquidity Risk and Exchange Rate Risk” . Operational risk—the risk of loss from failed internal processes, people, or systems—is a daily concern.
6.2 Operational Risk Management
A key learning objective is to “Monitor and control corporate exposure to financial, regulatory, and operational risk” . This is achieved through several controls:
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Segregation of Duties: No single individual should be able to execute, approve, and settle a transaction.
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Treasury Policies: Formal policies define acceptable risk limits and procedures.
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Audit Trails: All transactions should be traceable for review and audit.
6.3 Counterparty and Credit Risk
Treasury must manage the risk that a counterparty (e.g., a bank or a corporate client) defaults. This includes “monitor[ing] and control[ling] corporate exposure to financial… risk” , which involves setting counterparty limits and monitoring credit ratings.
6.4 FX and Interest Rate Risk
If the organization has exposure to foreign currencies or floating-rate debt, treasury must manage FX and interest rate risk, often using derivatives to hedge these exposures. The CertT syllabus includes “Financial risk analysis and management” as a core unit .