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

Which of the following is the strongest argument AGAINST operating a multinational's treasury as a profit centre?

The main argument against a profit centre treasury is that the pressure to earn profits may lead staff to speculate in currency, interest rate or derivative markets. That increases the group's risk beyond board appetite, whereas benchmarking, motivation and transparency are advantages of the approach.

  1. AIt allows the treasury to benchmark its services against external banks
  2. BIt motivates treasury staff through performance-related rewards
  3. CIt may encourage treasury staff to take speculative positions that expose the group to more risk than the board intendsCorrect
  4. DIt makes the cost of treasury services to subsidiaries more transparent

Explanation

Profit targets can push treasury staff into speculative trading, adding risk that conflicts with the treasury's main aim of managing the group's existing exposures. The other options are recognised benefits of a profit centre approach: benchmarking, motivation and transparency of costs.

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