Treasury ABC Part IV
For many people Treasury is, as they think, something that is not concerning. Because there are many items that could be mentioned and listed here, I chose to mention the items that have effect on our daily lives, even if we are not aware of the existence of the described item. Last week I published the third part of the treasury ABC which I’ll call the Treasury ABC for normal citizens.
R is for Regulations
Regulations, regulations. Most people don’t like rules and legislations in their life. The perception is that rules and laws make us “less free”. And in a way, it is. Another way of looking to rules and legislations is that they give a certain assurance that things are going in an way that is generally accepted. Related to treasury activities it is important that the funds invested e.g. for your pension are in safe hands and that risks are limited to guarantee that, when you are entitled to receiving a monthly pension payment, you actually see the amount on your bankaccount. So remember, rules give more certainty and reduce risk for your own sake.
S is for Stock Exchange
Being Dutch it might make you proud to say that a Stock is a dutch invention. One of the oldest known stock is a share in the VOC (Vereenigde Oostindische Compagnie) dated September 9th 1606. Having stocks, and wanting them, brings the next step: a stock exchange where people can buy or sell financial instruments (stocks, options, etc.). Nowadays the index of the Stock Exchange is a main indicator of the state of the economy in a country. The higher the index the better the economy (or the perception of the economic state).
T is for Treasury
When writing the ABC for Treasury it might be helpful to give a definition of Treasury itself.Treasury is about steering and control of financial assets within an organization. Part of treasury management is Risk management. An organization wants to be sure that its financial assets will not disappear “in air” because of wrong investments. Finally, Treasury is also about reporting and justification of the actions which were made with regard to Treasury.
U is for United Kingdom
The United Kingdom is (still) one of the biggest countries in the EU. What makes this country special is that it did not give up it’s own currency but kept the Great Britain Pound (GPB) with care and proud. If that was the right decision is hard to say. Anyway, since we know that the outcome of the 23rd of June the UK will most probably will exit the EU, having their own currency makes such a step less complicated then it already is. Let’s compare some figures between the Euro, the GPB and the US Dollar (figures as at august 8th, 2016):
Currency rate USD 1.00 0.77 0.90
Currency rate GBP 1.30 1.00 1.16
Currency rate Euro 1.12 0.86 1.00
On June 23rd you could buy GBP 762 for Euro 1000. A day later, after the Brexit seemed unavoidable, you could buy GBP 813 and today (august 11th) GPB 859 for Euro 1000. Now we can see that the (financial) world doesn’t think it is very wise for the United Kingdom to leave the EU. The currency rate of the GPB to Euro has dropped around 12%.
V is for Volatility
Volatility of a stock or a currency rate is an indicator for the stability of it. The more volatile the stock, the more unrest around the company concerned. Some stocks are very stable and give the investor lower risk. The more volatility, the more uncertainty in the market. You can figure out that the more volatile the market is the more your investment is at risk.
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