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

A multinational group is deciding whether to run its treasury as a cost centre or a profit centre. Which statement is most accurate about the profit centre approach?

A profit centre treasury is measured on the profits it earns, which can encourage speculative positions that add risk beyond the group's commercial exposures. Board policies and controls remain essential. Minimising cost describes a cost centre, and no structure guarantees that exposures are eliminated.

  1. AIt encourages the treasury to take speculative positions to earn profits, which may expose the group to risks beyond its normal commercial exposuresCorrect
  2. BIt removes the need for board-approved treasury policies because performance is measured by profit
  3. CIt ensures that the treasury's only role is to minimise operating costs
  4. DIt guarantees that the group's foreign exchange exposures are eliminated

Explanation

A profit centre treasury is judged on profits earned, which can create an incentive to speculate and increase risk. Policies and controls are still required, so the second option is wrong. Minimising costs is the cost centre approach, and no approach guarantees elimination of exposures.

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