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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 as a profit centre. Which of the following is the main argument usually made in favour of operating treasury as a cost centre?

The main argument for a cost-centre treasury is that it keeps attention on managing risk and minimising costs for the group, rather than on earning profits through speculation. Profit-centre status can encourage risky dealing, so the cost-centre model better aligns treasury activity with the group's core business.

  1. AIt encourages treasury staff to take speculative positions to earn trading profits
  2. BIt keeps the focus on managing risk and minimising cost for the group rather than on generating profit from speculative activityCorrect
  3. CIt allows treasury to charge market-rate fees to subsidiaries to maximise its own profit
  4. DIt removes the need for internal controls over dealing activity

Explanation

A cost-centre treasury is judged on service and risk reduction for the group, so staff have less incentive to speculate. A profit centre is rewarded for profit and may take larger risky positions, and it often charges market-rate fees. Controls are needed under either structure.

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