Corporate Treasury Management

Module Title	Corporate Treasury Management
Module Code	25-6015-00L
Semester of Delivery	See Module Information Table
Mandatory/Elective/Option	See Module Information Table
Level	6
Credit Points	20

Assessment Mode Weighting	CWEX100


Pre-requisites	None
Co-requisites	None

Class Contact Hours
Average Weekly	1.5

Directed Learning
Average Weekly	5

Module Leader	Paul Cowdell
	Sheffield Business School
Module Banding	A
Approval Status	Validated

Rationale

This module focuses on the role of a corporate treasurer in a major company from any sector apart from that of financial services. Over the past few years, there have been exciting developments in the practice and theory of corporate financial risk management, and there has been a phenomenal growth in the use of derivatives.

As regards the financial risk management aspect of the module, according to the Economist (10th February 1996) "Senior managers used to worry about competitors, new products and new factories. Now they worry about the risks of losing a fortune on derivatives, which few people understand, but for which demand has soared ".

Developments in corporate governance (eg Turnbull, Cadbury, Hempel) now mean that there is more and more pressure on directors to understand and monitor the financial risks of their companies. Thus general management cannot leave the control of derivatives and capital structure to "rocket scientists", but must acquire a firm understanding so as to monitor the treasurer's activities.

Another area where the corporate treasurer has an input is that of corporate finance, with particular emphasis on the capital structure of a company and valuations for takeover purposes. The concept of TACC ( total average cost of capital) [ie the cost of traditional equity and debt components plus any derivative or insurance costs for risk reduction] is a relatively recent development which seems set to grow in importance. The concept of TACC fits in well with the more traditional aspects of corporate treasury such as, capital structure, company valuation, and financial risk management.

This module should be especially attractive to students from the Finance Programme with career aspirations in the financial risk management of companies. Students from the Finance Programme who wish to pursue a career in investment/ corporate banking should find the module develops their appreciation of the requirements of an investment bank's corporate clients. In addition, students on the Business Studies Programme with career aspirations in general management should find this module a very useful aid to the monitoring and control of the treasury function.

Summary of Aims

To develop an awareness of financial risk management principles as applied to major companies outside the financial services sector.
To formulate, in company specific situations, financial risk management packages which include derivatives.
To develop an awareness of the factors which determine the relationship between major corporates and their banks
To develop an ability to undertake critical analysis of the principles and practice of capital structure and company valuation.
To develop an insight into the ways in which the performance of the corporate treasury function may be measured and controlled.

Anticipated Learning Outcomes

Upon completion of this module, students should be able to:

Appreciate the arguments both for and against the hedging of financial risk by major corporates from sectors other than financial services.
Evaluate, in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management tools.
Identify the key factors which determine whether relationship or transaction banking is appropriate for major corporates.
Evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situations such as takeovers.
Identify the key factors upon which the measurement and control of treasury performance depend

Assessment and Feedback Strategy

Formative assessments will consist of seminar discussion of case studies and other scenarios. Students will be given the opportunity to submit individual written answers to case studies and to sample examination questions for individual feedback. Individual tutorial feedback will be timetabled for students so that they can assess their progress at various stages of the assignment.

Summative assessment is achieved though the coursework and examinations. The assessment will be 80% coursework and 20% examination.

The numeracy skills which apply to learning outcome 2 are most effectively assessed by an examination, whereas the other learning outcomes can be most effectively assessed by way of coursework based on a specific company.

The Examination Paper will be a 1.5 hour closed book exam normally consisting of three questions any two of which must be answered.

The coursework will cover the remaining learning outcomes. Students will select a specific UK listed corporate and will undertake an assignment using the company's published accounts. This assignment will cover the remaining learning outcomes not covered by the examination test the application of the various concepts to the particular company. Students will be given a specific individual environmental scenario for their chosen company and will be required to apply the principles and concepts in that scenario.

Note

Inevitably, there could be some overlap between the examination and the assignment as regards this learning outcome, but the examination will focus on the numeracy aspects.

Module Assessment Criteria

Learning Outcome	Level descriptors
Learning Outcome	fail	PASS	2.2	2.1	First
Outcome 1	Little or no appreciation of the arguments as applied to the company	Some appreciation of the arguments as applied to the company	Reasonable appreciation of the arguments as applied to the company	Good appreciation of the arguments as applied to the company	Very good appreciation of the arguments as applied to the company
Outcome 2	Little or no attempt to analyse and evaluate , in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management tools.	Some attempt to analyse and evaluate , in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management	Reasonable attempt to analyse and evaluate , in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management	Good attempt to analyse and evaluate , in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management	Very good attempt to analyse and evaluate , in the context of financial risk management packages, the benefits and drawbacks of derivatives as financial risk management
Outcome 3	Little or no knowledge of the key factors which determine whether relationship or transaction banking is appropriate the chosen corporate.	A basic knowledge of the key factors which determine whether relationship or transaction banking is appropriate for the chosen corporate	Reasonable knowledge of the key factors which determine whether relationship or transaction banking is appropriate for the chosen corporate	Good understanding and knowledge the key factors which determine whether relationship or transaction banking is appropriate for the chosen corporate.	A very good understanding of the key factors which determine whether relationship or transaction banking is appropriate for the chosen corporate.
Outcome 4	Little or no attempt to analyse and evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situation	Some attempt to analyse and evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situation	Reasonable attempt to analyse and evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situation	Good attempt to analyse and evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situation	Very good attempt to analyse and evaluate the theoretical considerations relating to valuation and capital structure, and apply these principles to company specific situations
Outcome 5	Little or no knowledge of the key factors upon which the measurement and control of treasury performance for the company depend	A basic knowledge of the key factors upon which the measurement and control of treasury performance for the company depend	Reasonable knowledge of the key factors upon which the measurement and control of treasury performance for the company depend	Good understanding and knowledge the key factors upon which the measurement and control of treasury performance for the company depend	A very good understanding of the key factors upon which the measurement and control of treasury performance for the company depend
Outcome 6	Poorly written, hard to follow, spelling and grammatical errors.	Able to follow points made, some spelling and grammatical errors.	Reader- friendly and few spelling and grammatical errors.	Very reader-friendly, few or no spelling and grammatical errors.	Very reader-friendly, few or no spelling and grammatical errors, imaginative/ innovative approach to communication.

Teaching and Learning Strategy and Methods

Students will be given a reading pack which will form the directed pre session reading. Students will be advised that it is essential to complete the specified readings from the reading pack prior to the appropriate attendance session. The reading pack is essential, since the main text books can be quite difficult to follow for final year undergraduates starting from scratch. However, the pre-session reading and lecture/seminars should enable students to consolidate their learning by completing the directed post-session reading from text books and articles.

The various components of the module tend to break down into blocks which can be most effectively taught in a single three hour session. This the teaching/ learning sessions will be timetabled as one three hour block every two weeks. This timetable will also give students more time between sessions so that they can undertake and reflect on the prescribed pre-session and post session reading.

There will be a few keynote lectures supplemented by a number of tutorials at which case studies on the various lecture topics will be analysed. Students will then be given further directed readings to enhance their knowledge and understanding.

Indicative Content

Key financial risks which major companies must manage
Risk reward trade off governing the extent to which hedging financial risk is necessary
Derivatives as a financial risk management tool
Relationship and transaction banking
Liquidity management, management of short term surplus cash
Rating agency criteria for banks and other borrowers
The interactions between investment, dividend and financing decisions.
The role of a corporate treasurer in a takeover situation.
Implications for treasurers of the relevant corporate governance principles and of the concept of Enterprise Wide (Holistic) Risk Management
Organisation, performance measurement and control of treasury
Implications of IAS 39 and similar accounting conventions for derivatives in risk management

Cost of capital, beta, CAPM, Gordon Growth model, WACC
Valuation techniques

Indicative Reading List

A. Buckley	Multinational Finance 4th Edition (Financial Times/Prentice Hall 2000)
Eitman, Stonehill & Moffett	Multinational Business Finance 9th Edition (Addison Wesley 2001)
L. Moir	The ACT Guide to Managing Liquidity (Blackwell 1993)
A.C. Shapiro	Multinational Financial Management 5th Edition Allyn and Bacon 1996
Cowdell P.F. and Clayton N.	Problems and Practices for Corporate Treasurers (Financial Times/ Pitman 1998 )
Swann and Precious	The Business of Finance- A Treasury Policy Blueprint (Association of Corporate Treasurers 1996)
MacCallan	The Business of Finance/ Re-engineering Corporate Treasury ) (Association of Corporate Treasurers 1995)
Shapiro A.C. and Balbirer S D	Modern Corporate Finance (Prentice Hall) 2000
Creed D	The Business of Finance- Uses of Derivatives ( Association of Corporate Treasurers )1997
Ross,D. Grout, J Creed,D. and Wagener,J.	The Business of Finance- Risk Management and control of Derivatives ( Association of Corporate Treasurers )1994 The Business of Finance- Financial Risk and Internal control ( Association of Corporate Treasurers )1995 The Business of Finance- Uses of Derivatives ( Association of Corporate Treasurers )1997
Association of Corporate Treasurers	The Treasurers Handbook ( Current Year)

Indicative Web Sites

http://www.treasurers.org. (Association of Corporate Treasurers)

http.//www.economist.com/editorial/freeforall/focus/big_mac_index.html. A collection of articles about the Big Mac index.

http://www.treasurers.org/know/services/survey.cfm ( cash management survey)

(http://www.treasurers.org/what/atact/pressrel/prssrls0500IGTA.html (IGTA press release on accounting for financial instruments)

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