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

Which statement is the main argument AGAINST operating a multinational's treasury as a profit centre?

The main argument against a profit centre treasury is that the pressure to make profits encourages speculative dealing, which raises the group's risk beyond its appetite. Market-based charging, profit-related motivation and external comparison are advantages of the profit centre approach rather than objections to it.

  1. AIt allows the treasury to charge subsidiaries market-based rates for services
  2. BIt encourages treasury staff to take speculative positions that increase the group's risk exposure beyond its risk appetiteCorrect
  3. CIt can motivate treasury staff through profit-related rewards
  4. DIt enables comparison of treasury performance with external banks

Explanation

The key danger of a profit centre is that the drive to earn profits leads to speculation and risk-taking, conflicting with the treasury's role of managing and reducing risk. The other three statements are benefits cited in favour of profit centres.

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