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ACCA Strategic Professional · Advanced Financial Management · The role of the treasury function in multinationals

A multinational group is deciding whether its treasury department should be run as a cost centre. Which of the following is the main feature of a cost centre treasury?

A cost centre treasury is judged on efficient, budget-controlled delivery of services and on risk management, not on profit. Profit-seeking positions and market-rate charging to subsidiaries belong to a profit centre, so the cost centre option is the one stressing service and control.

  1. AIt is expected to earn profits by actively taking speculative positions in currency and interest rate markets
  2. BIt charges subsidiaries market-based prices for its services and is judged on the profit it makes
  3. CIt is judged on its ability to provide services efficiently within budget, with a focus on managing risk rather than making profitCorrect
  4. DIt is set up as a separate legal entity that must raise its own external equity capital

Explanation

A cost centre treasury exists to serve the group by minimising risk and providing services at low cost, and it is assessed against budget and service quality. Profit-seeking and market-based charging are features of a profit centre. Setting up a separate entity with its own equity is not what defines a cost centre.

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