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

A multinational is deciding whether its treasury should operate as a cost centre or a profit centre. Which statement is the most accurate argument in favour of the cost centre approach?

The cost centre approach keeps treasury focused on managing risk and supporting the group's operations rather than earning trading profits. Because it is not judged on profit, it has less incentive to speculate, which reduces the danger of unauthorised or excessive risk-taking.

  1. AIt encourages treasury to take speculative positions to maximise returns on currency and interest rate exposures
  2. BIt keeps treasury focused on managing risk and supporting the business, avoiding speculative activity that could add riskCorrect
  3. CIt allows treasury to set transfer prices with subsidiaries to maximise its own reported profit
  4. DIt removes the need for treasury policies and board-approved limits

Explanation

A cost centre treasury is judged on service and cost efficiency, so it has little incentive to speculate. A profit centre may be tempted to take open positions to earn profit, increasing the group's risk. Treasury policies and limits are needed under either approach.

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