Essentials of Treasury Management, 6th Edition
This newly reorganized text updates the fifth edition to reflect the many changes that have taken place in the last three years to the responsibilities of treasury management professionals.
Here's some of what's new in the 20 chapters of the sixth edition:
- The Legal and Regulatory Environment has been revised to reflect increasing coverage of global regulators and taxes, trends in regulations and the safety and soundness of the financial system
- The Banks and Financial Institutions section has been rewritten to focus more on global financial institutions.
- The Payments Systems, Money Markets and Capital Markets sections have been expanded to increase coverage of global instruments.
- The section on Relationship Management and FSP Selection now includes more information on types of bank accounts as well as a sample RFP for Global Treasury Services.
- Treasury’s role in budgeting and performance management sections have been added to the Financial Planning and Analysis section.
- The Disbursements, Collections and Concentrations section has expanded coverage of Zero Balance and Target/Threshold Balance accounts as well as credit transfers, wage payment and payment factories. An increased emphasis on payments fraud includes a new section on the tools for payments fraud prevention and detection.
- The Technology in Treasury section now includes sections on program management and evolving technologies.
- The Financial Risk Management section includes expanded coverage of pricing options, managing interest rate exposure and hedging policies.
- The Capital Structure and Decision Management section has an increased emphasis on raising and managing long-term capital.
As with any publication there are errors found after printing. When errors have been reported, an errata will be posted here.
2020-2022 CTP Exam Knowledge Domains
|Content Area||Percentage of Test Items|
I. Maintain corporate liquidity required to meet current and future obligations in a timely and cost effective manner.
II. Manage capital structure, manage costs of long-term capital, and quantitatively evaluate long-term capital resource investments.
III. Manage internal and external relationships.
IV. Monitor and control corporate exposure to financial, regulatory and operational risk (including emerging and reputational risk).
V. Assess impact of technologies on the treasury function.
Essentials of Treasury Management, 6th Edition Chapters
Introduction to the Study of Treasury Management
II. The Evolving Role of the Treasury Professional
III. Organization of Essentials of Treasury Management
IV. Notes on Conventions Used in this Book
Chapter 1: The Role of Treasury Management
II. The Role and Organization of Treasury Management
III. Finance and Treasury Organization
IV. Corporate Governance
Chapter 2: Regulatory and Legal Environment
II. General Regulatory Environment
III. Primary Regulators and Standard Setters of International Financial Markets
IV. National/Regional Approaches to Legislation and Regulation
V. Tax for Treasury
VI. Bankruptcy/Insolvency Laws
VII. Trends in Regulation
Chapter 3: Banks and Financial Institutions
II. Financial Institutions: Functions and Services
Chapter 4: Payment Systems
II. Payment Overview
III. Payment Instruments
IV. Payment Systems
Chapter 5: Money Markets
II. Money Market Participants
III. Money Market Instruments
Chapter 6: Capital Markets
II. Structure of the Capital Markets
III. Debt Market
IV. Equity Market
Chapter 7: Relationship Management and Financial Service Provider Selection
II. Bank Relationship Management
III. FSP Selection
IV. Assessing the Risk of FSPs
Chapter 8: Financial Accounting and Reporting
II. Uses of Financial Statements
III. Accounting Concepts and Standards
IV. Financial Statement Reporting
V. Accounting for Derivatives, Hedges, and Foreign Exchange (FX) Translation
VI. Accounting for Governmental and Not-For-Profit (G/NFP) Organizations
Chapter 9: Financial Planning and Analysis
II. Time Value of Money
III. Capital Budgeting
V. Cost Behavior
VI. Financial Statement Analysis
Chapter 10: Introduction to Working Capital Management
II The Link Between Cash and Working Capital
II. Components of the Capital Cash Conversion Cycle (CCC)
IV. How Changes in Current Balance Sheet Accounts Impact External Financing
V. Strategies for Investing In and Financing Working Capital
VI. Management of Trade Credit and Accounts Receivable (A/R)
VII. Management of Inventory
VIII. Management of Accounts Payable (A/P)
IX. International Working Capital Management Tools
Chapter 11: Working Capital Metrics
II. Fundamental Working Capital Metrics
III. The Cash Conversion Cycle (CCC)
IV. Calculations for Trade Credit Decisions
V. Accounts Receivable (A/R) Monitoring
Chapter 12: Disbursements, Collections, and Concentration
IV. Concentration of Funds
Chapter 13: Short-Term Investing and Borrowing
II. Managing Short-Term Investments
III. Pricing and Yields on Short-Term Investments
IV. Managing Short-Term Borrowing
V. Debt Financing
VI. Market Information for Investors and Borrowers
Chapter 14: Cash Flow Forecasting
II. Purpose of Cash Flow Forecasting
III Types of Forecasts
IV. Forecasting Process
V. Forecasting Methods
VI. Best Practices for Cash Flow Forecasting
Chapter 15: Technology in Treasury
II. Information Technology for Treasury
III Treasury Management Systems (TMSs)
IV. Project Management
V. Communications and Technology Developments
Chapter 16: Enterprise Risk Management
II. Risk Management
III. Categories of Risk
IV. Techniques Used to Measure Risk
V. Managing Insurable Risks
VI. Disaster Recovery and Business Continuity
Chapter 17: Financial Risk Management
II. Types of Financial Risk
III. Managing Financial Risk
IV. Derivative Instruments as Financial Risk Management Tools
V. Managing Interest Rate Exposure
VI. Managing Foreign Exchange (FX) Exposure
VII. Managing Commodity Price Exposure
VIII. Accounting and Tax Implications of Financial Risk Management
IX. Hedging Policy Statement
Chapter 18: Treasury Policies and Procedures
II. Overview of Treasury Policies and Procedures
III. Creating a Treasury Policy Document
IV. Overview of Key Treasury Policies Policy Development Example: Short Term Investment Policy
V. Overview of Key Treasury Policies
Appendix 18.1 – Sample Short-Term Investment Policy
Chapter 19: Long-Term Investments
II. Valuation of Capital Market Securities
III. Managing Capital Market Investments
Chapter 20: The Capital Structure Decision and Management
II. Capital Structure
III. Raising and Managing Long-Term Capital
IV. The Weighted Average Cost of Capital (WACC)
V. Lease Financing
VI. Equity Financing and Management
VII. Miscellaneous Corporate Finance Topics
Essentials of Treasury Management, 6th edition, Chapter 13: Short -Term Investing and Borrowing
III. Pricing and Yields on Short-Term Investments
Factors Influencing Investment Pricing
Yield is a measure of the return an investor derives from a financial instrument. Typically, an investment yield is stated as an annual percentage rate of return. Many factors can influence the pricing and, ultimately, the yield of an investment. These factors include default, liquidity, and price risk; the general shape of the yield curve; and the tax status of the investment. The concept of yield curves and the impact of an investment’s tax status are described below.
A. Yield Curves
A yield curve is a plot of the yields to maturity on the same investment instrument or class of instruments, but with varying maturities, as of a specific date. For example, a yield curve for US Treasury instruments is a plot of yields to maturity for US Treasury bond issues with varying maturities as of the close of business on a particular date. Similarly, a plot of yields to maturity for AA-rated industrial bonds with various maturities is a yield curve for that class of instruments.
Refer to Exhibit 13.3. The curve in the graphs of the various yields to maturity illustrates what is called the term structure of interest rates. In the left panel of Exhibit 13.3, the yield to maturity on the instrument or class of instruments increases with maturity, whereas it declines with maturity in the right panel.
The slope, or shape, of the yield curve at a point in time has decision implications for those managing the short-term investment portfolio. Since short-term interest rates are typically lower than long-term rates, an upward-sloping yield curve is referred to as a normal yield curve. The liquidity preference theory of the term structure of interest rates holds that investors demand a yield premium in compensation for the lower liquidity that is associated with a longer maturity. Thus, long-term rates are normally higher than short-term rates.
A downward-sloping yield curve is referred to as an inverted yield curve. In this case, investors are shifting their preferences to long-term securities (or conversely, issuers are shifting their preferences to short-term borrowing). This increased demand for long-term securities causes their prices to increase and long-term yields to decline, thus pushing down the long-term end of the curve and causing an inversion. An inverted yield curve is typically a sign that the market is expecting a recession in the near future and is investing in longer-term securities to attempt to lock in interest rates or avoid any reduced interest rate that may occur in the short run. It is also a sign of low expectations with regards to future inflation, as expectations of high inflation would automatically increase the yields required on long-term securities (to offset the expected inflation) and create a normal, upward-sloping yield curve. An inverted yield curve may occur as the result of Federal Open Market Committee (FOMC) open market operations in the United States. If the US Federal Reserve (the Fed) is attempting to raise interest rates, and the target rate is a short-term interest rate, short-term rates will tend to increase before the actions affect longer-term interest rates. This may result in a downward-sloping yield curve until long-term rates increase.