Cash Management of MNC

INTERNATIONAL FINANCIAL MANAGEMENT Fifth Edition EUN / RESNICK 

'u"tinationa" Cash 'ana#e!ent

%&

Chapter Nineteen

Chapter Objective: This chapter discusses various issues associated ith !u"tinationa" cash !ana#e!ent$ Fifth Edition

Chapter Outline 

The 'ana#e!ent of 'u"tinationa" Cash (a"ances



(i"atera" Nettin# of Interna" and e)terna" Net Cash F"os



Reduction in *recautionar+ Cash F"os



Cash 'ana#e!ent S+ste!s in *ractice

The Management of International Cash Balances 

The si,e of cash ba"ances



The currenc+ denomination



here these cash ba"ances are "ocated

The !i"e of Cash Balances 

The opti!a" si,e of the fir!-s cash ba"ances depend upon: The cost of .eepin# too !uch0 cash on hand$



i.e. the

opportunit+ costs of holding  cash

The cost of not .eepin# enou#h cash on hand$



i.e. the

tradin# costs associated ith havin# too little cash

The variabi"it+ of cash f"os$



The !i"e of Cash Balances    h   s   a   c   #   n    i    d    "   o    h    f   o   s   r   a    "    "   o    d   n    i   s    t   s   o    C

Tradin# costs increase hen the fir! !ust se"" securities to !eet cash needs$ Tota" cost of ho"din# cash Opportunit+ Costs The invest!ent inco!e fore#one hen ho"din# cash$ Tradin# costs C 1

Si,e of cash ba"ance

Choice of Currenc# 

(+ !aintainin# cash ba"ances in a particu"ar currenc+2 the 'NC is essentia""+ specu"atin# 3or hed#in#45 in that currenc+$

here Cash Balances are Located$ 

Shou"d the fir! have centra"i,ed cash !ana#e!ent in the ho!e countr+4



Or shou"d the fir! "et each affi"iate hand"e it "oca""+4



6here are borroin# costs "oest and invest!ent returns hi#hest4

Netting% Bilateral and Multilateral 

'u"ti"atera" Nettin# 

Is an efficient and cost7effective !echanis! for sett"in# interaffi"iate forei#n e)chan#e transactions$



 Not a"" countries a""o 'NCs to net pa+!ents 

(+ "i!itin# nettin#2 !ore unnecessar+ forei#n e)chan#e transactions f"o throu#h the "oca" ban.in# s+ste!$

E&posure Netting% an E&le Consider a U$S$ 'NC ith three subsidiaries and the fo""oin# forei#n e)chan#e transactions 38999s5: 8=9 89 89

89 8