The extremely unstable period that has just begun makes the Treasury function more essential than ever within the Finance Department.

The Treasury Department secures the company’s liquidity through the cash forecasting process and the monitoring of financing instruments. It is also in charge of managing financial risks through the hedging strategies implemented.

In order to effectively address these prerogatives, it is essential to have an efficient and scalable information and decision-making system that enables quick reactions in an economic environment that is more volatile and uncertain than ever.

Global visibility of the liquidity position

Where is the cash? This question has never been more critical.

Cash pooling structures are absolutely necessary to efficiently track and allocate all of the group’s liquidity on a daily basis.

Beyond the daily tracking of cash, it is absolutely essential to have all the information needed to forecast the evolution of the cash position in the weeks and months to come. It is also crucial to have regularly updated information (beyond the monthly or quarterly updating of forecasts), given the daily uncertainties that punctuate economic activity.

This feedback of information requires a tool that is accessible by all operating companies and business units, and which provides the Group treasurer with the ability to have up-to-date consolidated information on his current and future treasury position.

In addition, the current uncertainties require the ability to simulate different cash flow forecast scenarios (depending, for example, on the duration of the lockdown or the recovery of the economic activity), to the point of measuring the impact of the worst case scenario.

The impact of very high currency volatility must also be taken into account in these sensitivity analyses.

Ultimately, comparisons between the different scenarios and the actual will have to be made in order to refine the forecasts.

Decision-making: Financing

The treasurer must have the best possible knowledge of the group’s treasury cycles, to be able to anticipate the group’s financing needs (or investment capabilities) over short-, medium- and long-term horizons.

This anticipation can only materialize with a reliable forecast of future liquidity.

The very high volatility of the markets threatens liquidity. Financing (and investments) strategies must take this new reality into account.

Short-term treasury forecasts will be necessary to determine the policy for issuing commercial papers, or short-term bank loans. Long-term debt structure may also be reconsidered based on the difference between current and past liquidity position, and forecast position.

A solution for dynamic debt management is therefore essential.

It is indeed necessary to simulate the coverage of the liquidity gap. This indicator will have been determined beforehand in relation to the financing facilities available on the market, or on the basis of existing credit lines. Outstanding credit facility must be accessible at all times in the information system.

Hedging strategies

In addition, it is essential to use debt monitoring tools to assess the prospective cost of debt in relation to current market conditions. These market data must also be stress tested to simulate the impact of their variations in P&L terms.

Thus, if the debt structure is floating-rate, the impact of a floating-rate to fixed-rate swap strategy will need to be assessed. This will help to prevent future uncertainties and lock in debt at low interest rate levels.

Similarly, it may be necessary to assess the impact of extension of transactions reaching maturity in the near future. It may also be relevant to evaluate the consequences of hedging anticipated debt to be issued in the future.

When it comes to FX hedging, the CTM (critical terms match) approach is often preferred. It consists of hedging exposures based on the time positioning of the underlying positions. The current instability will lead to a strong decorrelation between underlying and derivatives, and to a very likely derecognition of hedge accounting strategies if they are not revalued.

Accurate and careful monitoring of the underlying position, derived from cash flow forecasts, is absolutely necessary in order to implement dynamic hedging strategies aimed at correcting the impact of over- or under-hedging resulting from forecasting errors.

The information system must be able to provide updated foreign exchange positions from all operating subsidiaries, to compare underlying and derivative exposures, and to simulate the implementation of new hedging transactions on these positions.


The Treasury department is still often considered as a niche within the Finance division, entrusted to a team of specialists. Nevertheless, the exceptional situation we are going through highlights the essential role that Treasury plays in managing liquidity in times of crisis, and the absolute necessity to invest in this function in order to be as well prepared as possible to face the unprecedented environment in which we are currently operating.

In this context, the management of all components of the Treasury function – liquidity, debt, interest rate and FX rate positions, etc. – requires a global information system that provides permanent access to information from the operating companies and that has functionalities to simulate as many stress scenarios as necessary.