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Corporate Treasury Management Of Daimler Chrysler (2,722 Words) (a) With ...

Corporate treasury management of Daimler Chrysler
(2,722 words)
(a) With reference to literature and practice, identify and justify possible key bench marks which could be used to measure the performance of the treasury function in your chosen company.
Daimler Chrysler (DC) has a cost saving centre treasury. The objective of the cost saving centre treasury is to 'maximise profitability by controlled and active management of some or all of the financial risks arising from the underlying business, while containing risk from these exposures to acceptable levels" (Lecture notes, p.142). The company shows a lot of signs of faith in the cost centre treasury, for example, by focusing on hedging the majority of its exchange and interest rate risks. However, while the company does hedge the majority of its exchange rate risks, via currency options and exchange forwards, it does not hedge any of the exchange risks for its subsidiaries that are situated outside of the EU zone (Daimler Chrysler, 2006 p.71). Furthermore, it hedges the interest rate fluctuations by purchasing interest rates derivatives, such as swaptions, caps and floors. DC states that it does this in order to "achieve the desired interest rate maturities and asset/liability structures" (Daimler Chrysler, 2006 p. 72). By using the word 'desired' the company states that it manages its hedges in order to make a profit, which is typical for the cost saving centre. Moreover, DC often 'assesses' its current hedging positions in order to review its decisions in line with changes in economic conditions . In a cost centre "all hedges would be allowed to run to maturity no matter what changes may take place, whether internal or external, in the intervening period" (Lecture note, p.142).
 The cost saving centre performance benchmark is to capture the best forward rate, swaption and caps and floors that will provide the company with a profit, while hedging the exchange and interest rate risks. Then it is in the interest of the cost saving centre to negotiate the same rate with the bank. Frequent assessments that the DC incorporates within the corporate treasury allows it to examine the financial market and make appropriate decisions to create a surplus from exchange and interest rate risks. Furthermore, the cost saving centre can also make additional surplus from not hedging the risks as it does at the moment e.g. DC does not hedge the exchange rate of its subsidiaries (Daimler Chrysler, 2006 p. 71).
Similar performance benchmarks can be applied to the rest of the industries corporate treasuries. All of the treasuries have to hedge their exchange and interest rate risks, however the extent of hedging and the final target to be achieved will depend on the type of treasury that each company has. Another benchmark can be the performance of negotiating interest charges and credit availability with banks and other lenders.

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