Skip to content

ACCA Strategic Professional · Advanced Financial Management

The Role of the Treasury Function in Multinationals

The treasury function manages a group's cash, funding, foreign exchange and interest rate risk, and its banking relationships. In AFM you must judge how it should be organised: cost or profit centre, centralised or not. Solve questions by stating the objective, applying it to the scenario facts, and recommending with reasons.

What this chapter covers

This chapter covers how a multinational organises and controls its treasury. You look at what treasury is for, how it is structured, and which tools it uses to move and protect cash across countries. Those tools include transfer pricing, cash repatriation, netting and matching.

The questions are mostly discussion. You are given a group with subsidiaries in several countries and asked whether treasury should be centralised, whether it should earn profit, or how to cut transaction costs and risk. You need to apply the ideas to the facts given, not recite lists.

The chapter links to the rest of AFM. Hedging with forwards, futures, options and swaps is how treasury carries out its risk policy. Foreign investment appraisal, cost of capital and dividend policy also depend on the cash movement and tax issues here. Netting and matching sometimes appear with short calculations inside a larger Section A or Section B question.

Treasury issues show up in case studies and in the 25-mark Section B questions, usually as a discussion requirement that carries both technical and professional skills marks. Students often lose marks here by writing generic points. If you learn to tie each argument to the scenario and give a clear recommendation, you gain marks that many candidates miss. The topics are also light on calculation, so they reward steady practice on structure and judgement.

The role of the treasury function in multinationals: topics in the order to study them

  1. 1Role and Objectives of the Treasury FunctionStart here, because every later topic is judged against what treasury is meant to achieve.
  2. 2Cost Centre vs Profit Centre TreasuryOnce you know the objectives, you can debate whether treasury should be run for service or for profit.
  3. 3Centralised vs Decentralised TreasuryThis is the main structural decision and the most commonly examined discussion point.
  4. 4Transfer Pricing and Cash RepatriationThese are the practical ways a group moves value and cash between countries, so they follow the structure choice.
  5. 5Multilateral Netting and MatchingThis is the most numerical area, and it builds on understanding intra-group flows.
  6. 6Treasury Risk Management and GovernanceFinish with controls and policy, which tie the whole chapter together and link to hedging chapters.

How to prepare The role of the treasury function in multinationals

Treat this chapter as a discussion chapter with a small calculation element. Build clear arguments first, then practise applying them.

  1. Write a one-page summary of treasury objectives: liquidity, funding, currency and interest rate risk, and banking relationships.
  2. Make a two-column table for each pair of structures (cost vs profit centre, centralised vs decentralised) with advantages and disadvantages, then learn the conditions under which each is better.
  3. Learn the ways a group moves cash across borders, such as dividends, royalties, management charges, transfer prices and intra-group loans, and the tax and exchange control issues that affect each.
  4. Practise multilateral netting by building a matrix of amounts owed between group companies, then working out each company's net position and the savings in transaction costs.
  5. Answer past discussion requirements in timed conditions. For each point, add a link to the scenario, as in: point, scenario fact, consequence.
  6. Finish each answer with a clear recommendation and a short note on the risks or controls needed, since this earns professional skills marks.

Common mistakes in The role of the treasury function in multinationals

  • Writing generic lists of advantages and disadvantages with no link to the scenario.

    Fix: For each point, name a specific fact from the scenario and explain what it means for the group.

  • Treating centralised treasury as always better.

    Fix: Judge it against the facts: size, number of countries, local regulation, and need for local knowledge. Give a balanced view and a reasoned choice.

  • Forgetting tax and exchange control limits when discussing transfer pricing and repatriation.

    Fix: For every route of moving cash, state who may challenge it and what restrictions may apply.

  • Making errors in multilateral netting, such as double counting amounts or not converting to one currency first.

    Fix: Convert all amounts to one currency, list each company's total payments and receipts, and check that net positions add up to zero.

  • Ignoring governance and control when recommending a profit centre.

    Fix: Whenever you recommend taking risk, add limits, board oversight, segregation of duties and reporting.

  • Ending an answer without a clear recommendation.

    Fix: Keep two minutes at the end to state your conclusion in one or two sentences, with the main reason.

Last-day revision: The role of the treasury function in multinationals

  • Treasury manages liquidity, funding, foreign exchange risk, interest rate risk and banking relationships.
  • A cost centre treasury aims to provide service at low cost and does not seek profit.
  • A profit centre treasury may take positions and earn profit, which brings higher risk and needs strong controls.
  • Centralisation allows pooling of cash, bigger borrowing deals, lower borrowing costs and consistent risk policy.
  • Decentralisation gives local managers faster decisions and better knowledge of local markets and regulation.
  • Transfer pricing can shift profit between countries, but tax authorities may challenge prices that are not at arm's length.
  • Cash can be repatriated by dividends, royalties, management fees, loan interest and transfer prices, each with its own tax and regulatory limits.
  • Multilateral netting settles only the net amount owed by or to each group company, which cuts transaction costs and spreads.
  • Matching offsets receipts and payments in the same currency, which reduces the need to hedge.
  • Netting may be limited by exchange controls in some countries, so check the scenario for restrictions.
  • Governance needs a board-approved policy, limits, segregation of duties and regular reporting.
  • Always finish a discussion answer with a recommendation that fits the scenario.

The role of the treasury function in multinationals practice questions

The role of the treasury function in multinationals in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

The role of the treasury function in multinationals: frequently asked questions

What is the main role of treasury in a multinational?

Treasury manages the group's cash, funding and financial risks, mainly currency and interest rate risk. It also deals with banks and makes sure each part of the group has the funds it needs at the right time.

Should a multinational centralise its treasury?

Often yes, as it allows cash pooling, better borrowing terms and consistent risk policy. But local regulation, local market knowledge and the need for quick local decisions may favour a more decentralised set-up. Your answer should depend on the scenario.

How is multilateral netting calculated?

Convert all intra-group amounts to one currency, then total what each company owes and is owed. Each company pays or receives only its net balance. The gross flows minus the net flows show the transaction volume saved.

Is this chapter mostly calculations or discussion?

It is mainly discussion, with occasional short calculations such as netting. Marks usually go to applying the ideas to the scenario and reaching a justified recommendation.