Basics of Treasury Risk Management

Every investment carries with it a certain quantity and quality of risks depending on its type. Thus, the risk for bonds and other debt securities involve default on payments while the risk for stocks and other ownership securities relate to losses on trades. In both instances, nonetheless, investors require effective and efficient treasury risk management.

Treasury Risk Management - A Definition

Also known as treasury operations, treasury management is a multifaceted approach to wealth management in relation to the risks to which the components of wealth are exposed to. As such, it includes the management of the entity's holdings from cash to marketable securities with the aim of maximizing profits, liquidity and stability on one hand as well as mitigating its financial, operational and reputational risks on the other hand.

Admittedly, that definition is too filled with jargon so let's simplify it. Treasury risk management means the protection of assets from losses, wastage and thefts so that wealth can be built up one dollar at a time. Or more appropriately, build up wealth thousands of dollars at a time for the large companies and wealthy individuals.

If you are involved in treasury operations, you will handle one or all of the inflows and outflows of assets, liabilities and owners' equity of the entity. You may be assigned to collect, trade, disburse, invest and even provide for money and other assets.

Presence in Large Companies

Of course, you will most likely be part of a large financial institution involved in treasury risk management with a specialization in one aspect. With the numerous concerns related to treasury operations, the activities cannot be effectively and efficiently handled by a single individual. For example, you may be assigned to trade in bonds and stocks for the company's clients with the other aspects of treasury management being assigned to other employees.

Where can you find a job in treasury risk management? In previous years, the larger banks had a virtual monopoly on the provision of products and services related to treasury operations. This limited the job opportunities although the perks and privileges were, truly, drool-worthy.

Nowadays, smaller banks are offering similar services or are expanding on their present services in this area. This development can be attributed to many factors including tighter market concentration amidst the recessionary economy, availability of the displaced veteran professionals from the larger establishments and the advance of technology geared toward the smaller institutions.

In large banks, treasury risk management can be undertaken by several departments. Again, you will find many job opportunities here. There are fixed income desks devoted to the purchase and sale of interest-bearing securities; a foreign exchange desk that focuses on currencies; and an equities desk assigned to the stock market. Other departments include a proprietary trading desk, an asset liability management desk, and a transfer pricing desk.

Now, if you want to have your wealth managed by these companies, you must be prepared to pay the price. Although these establishments are highly secretive about their fees, you can ask around for an initial quote.

With treasury risk management, you are better able to manage your expectations about the risks and profits you can tolerate. At the very least, you will be able to protect your assets as much as you possibly can.