Treasury Today Country Profiles in association with Citi
Treasury Today September 2002 magazine Buy print copy button

September 2002

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Editorial

Buyer Beware

During uncertain times, it can be good to be a treasurer. The need for companies to maintain their cash balances and to reduce their reliance on working capital means a higher profile for the treasury department (although this profile doesn’t usually stretch to providing additional funds for treasury projects!).

The range of products available to assist treasurers continues to expand. Newer ones, like credit derivatives, as well as more established, but repackaged, ones such as hedge funds have been added to the treasurer’s toolbox. But these examples highlight two problems associated with any new product.

One is the level of complexity. Credit derivatives may well be the answer to many problems, but used badly they will be more trouble than they are worth. The second is transparency. How do these products work? Hedge funds seem to offer security in a falling market – but very few people actually understand the full risk. In a falling market, most people lose – why should hedge funds be immune? Yes, we know the answer, but the risks of shorting the market are not always explained very clearly.

Of course the professional buyer should beware. Fully understood, new products may suit the requirements of individual companies. But the old expression ‘you cannot get owt for nowt’ (something for nothing) is a reminder of the dangers that lie underneath so many of these apparently attractive offers.

Uncertain times are also when treasurers can take advantage of their higher profile and introduce some of the changes they have wanted to implement for a while. Not the big budget projects, but the changes to working capital management and to foreign exchange risk management that didn’t have the attention of the board when times were good.