《国际财务管理》（英文版） Chap18 Multinational cash Management

Chapter Eighteen Multinational cash Management 18 Chapter objective This chapter discusses various issues associated with multinational cash management

INTERNATIONAL FINANCIAL MANAGEMENT EUN / RESNICK Second Edition 18 Chapter Eighteen Multinational Cash Management Chapter Objective: This chapter discusses various issues associated with multinational cash management

Chapter outline e The management of Multinational Cash balances o Cash management Systems in Practice o Transfer Pricing related Issues ● Blocked Funds McGraw-Hilylrwoin 18-1 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-1 Chapter Outline ⚫ The Management of Multinational Cash Balances ⚫ Cash Management Systems in Practice ⚫ Transfer Pricing & Related Issues ⚫ Blocked Funds

The Management of International Cash balances o The size of cash balances o The currency denomination Where these cash balances are located McGraw-Hilylrwoin 18-2 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-2 The Management of International Cash Balances ⚫ The size of cash balances ⚫ The currency denomination ⚫ Where these cash balances are located

The size of cash balances e The optimal size of the firms cash balances depend upon The cost of keeping too much cash on han oi.e. the opportunity costs of holding cash The cost of not keeping enough cash on hand oi. e the trading costs associated with having too little cash The variability of cash flows McGraw-Hilylrwoin 18-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-3 The Size of Cash Balances ⚫ The optimal size of the firm’s cash balances depend upon: ◼The cost of keeping “too much” cash on hand. ◆i.e. the opportunity costs of holding cash ◼The cost of not keeping enough cash on hand. ◆i.e. the trading costs associated with having too little cash ◼The variability of cash flows

Choice of currency o By maintaining cash balances in a particular currency, the mnc is essentially speculating(or hedging? in that currency McGraw-Hilylrwoin 18-4 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-4 Choice of Currency ⚫ By maintaining cash balances in a particular currency, the MNC is essentially speculating (or hedging?) in that currency

Where Cash Balances are located . Should the firm have centralized cash management in the home country? Or should the firm let each affiliate handle it locally? Where are borrowing costs lowest and investment returns highest? McGraw-Hilylrwoin 18-5 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-5 Where Cash Balances are Located. ⚫ Should the firm have centralized cash management in the home country? ⚫ Or should the firm let each affiliate handle it locally? ⚫ Where are borrowing costs lowest and investment returns highest?

Cash management Systems in Practice ● Multilateral Netting Is an efficient and cost-effective mechanism for settling interaffiliate foreign exchange transactions o Not all countries allow MNCs to net payments By limiting netting, more unnecessary foreign exchange transactions flow through the local banking system McGraw-Hilylrwoin 18-6 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-6 Cash Management Systems in Practice ⚫ Multilateral Netting ◼ Is an efficient and cost-effective mechanism for settling interaffiliate foreign exchange transactions. ⚫ Not all countries allow MNCs to net payments ◼ By limiting netting, more unnecessary foreign exchange transactions flow through the local banking system

Multilateral Netting Consider a u.s. mnc with three subsidiaries and the following foreign exchange transactions $20 $30 $40 $10$35 $10 $30$40 $25 60 $20 $30 云图 McGraw-Hilylrwoin 18-7 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-7 Multilateral Netting Consider a U.S. MNC with three subsidiaries and the following foreign exchange transactions: $10 $35 $30 $40 $20 $25 $60 $40 $10 $30 $20 $30

Multilateral Netting Bilateral Netting would reduce the number of foreign exchange transactions by half $20 $30 $40 $10$35 $10 $30$40 $25 60 $20 $30 云图 McGraw-Hilylrwoin 18-8 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-8 Multilateral Netting Bilateral Netting would reduce the number of foreign exchange transactions by half: $10 $35 $30 $40 $20 $25 $60 $40 $10 $30 $20 $30

Multilateral Netting Bilateral Netting would reduce the number of foreign exchange transactions by half $10 $40 $10$35 $10 $30$40 $25 60 $20 $30 云图 McGraw-Hilylrwoin 18-9 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-9 Multilateral Netting Bilateral Netting would reduce the number of foreign exchange transactions by half: $10 $35 $30 $40 $25 $60 $40 $10 $10 $20 $30