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

A multinational's board is considering centralising treasury rather than allowing each subsidiary to manage its own finance. Which of the following is a recognised disadvantage of centralisation?

A recognised disadvantage of centralised treasury is that subsidiary managers lose autonomy and the group may lose local knowledge of banking and market conditions. The other listed points are advantages of centralisation, such as netting, pooling, better borrowing terms and concentrated expertise.

  1. ALoss of the ability to net and pool currency and cash positions
  2. BSubsidiary managers may feel reduced autonomy and local knowledge of banking and market conditions may be lostCorrect
  3. CLarger borrowing volumes cannot be used to negotiate better terms
  4. DDuplicate dealing expertise is required in every subsidiary

Explanation

Centralisation brings netting, pooling, better borrowing terms and concentrated expertise. Its drawbacks include reduced local autonomy and motivation, and loss of local market knowledge. The other options describe benefits or the decentralised position.

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