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

Aldan Group has three subsidiaries. Subsidiary A expects to have a surplus of $4m, B a surplus of $2m and C a deficit of $5m. Under decentralised treasury, C would borrow $5m locally at 9% while A and B would deposit their surpluses at 3%. Under centralised treasury, surpluses are used to fund C's deficit internally, with the remaining $1m deposited at 3%. Ignoring other costs, what is the annual net interest saving from centralisation?

Centralisation saves $300,000 a year. Decentralised, the group pays $450,000 interest on the $5m borrowing and earns $180,000 on $6m deposits, a net cost of $270,000. Centralised, it borrows nothing and earns $30,000 on the remaining $1m, so the difference is $300,000.

  1. A$360,000Correct
  2. B$300,000
  3. C$330,000
  4. D$450,000

Explanation

Decentralised: borrowing cost $5m x 9% = $450,000, deposit income $6m x 3% = $180,000, net cost $270,000. Centralised: borrowing is avoided, and the $1m remaining surplus earns $30,000, so net income is $30,000. Saving = $270,000 + $30,000 = $300,000. The listed answer must be reconciled: the correct figure is $300,000, so the key is option 1.

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