CH15 - CHAPTER 15 INTERNATIONAL WORKING CAPITAL MANAGEMENT...

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CHAPTER 15 INTERNATIONAL WORKING CAPITAL MANAGEMENT CHAPTER OUTLINE I. Basic Concepts of Working Capital Management a) Importance of working capital management b) Net working capital funding c) Economic constraints of current asset management (1) Foreign Exchange Constraints (2) Regulatory constraints (3) Tax constraints (4) Summary of constraints d) The ability to transfer funds e) Positioning of funds f) Arbitrage opportunities g) Different channels to move funds (1) Fund flows from parent to subsidiary (2) Fund flows from subsidiary to parent (3) Fund flows from subsidiary to subsidiary (4) Multinational netting (5) Leads and lags (6) Transfer pricing (7) Reinvoicing centers (8) Intracompany loans (9) Payment adjustments (10) Unbundling fund transfers II. Cash Management a) Objectives of cash management b) Floats c) Collection and disbursements of funds (1) Acceleration of Collections (2) Delay of payments (3) The cost of cash management d) Cash centers (1) Advantages of cash pooling (2) Factors affecting the location of cash centers e) Investing excess funds (1) Portfolio management (2) Portfolio guidelines f) International cash management practices III. Accounts Receivable Management b) Currency value problems (1) Sales to independent customers (2) Intracompany sales 126
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IV. Inventory Management a) Determining the amount of inventory b) Protective measures against inflation and devaluation c) Pricing V. Summary 127
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CHAPTER OBJECTIVE Chapter 15 covers the management of cash, accounts receivable, and inventory in the multinational corporation. In this chapter, we stress additional opportunities and risks of working capital management for a multinational company. First, multinational companies enjoy a wide variety of short-term financing and investment opportunities because they have many arbitrage opportunities in their overseas operations. Second, multinational companies face many environmental constraints because they do business in different environments. KEY TERMS AND CONCEPTS Working capital management is the management of current assets and current liabilities. Netting is a method designed to reduce the foreign exchange transaction cost through the consolidation of accounts payables and accounts receivable. Leads and lags are respectively acceleration and delay of the timing of foreign currency payments in order to reduce the foreign exchange exposure or to increase working capital available. Transfer prices are prices of goods and services sold between related parties such a parent and its subsidiary. Credit swap is a simultaneous spot-and-forward loan transaction between a private company and a bank of a foreign country. Transaction motive holds that cash balances are held partly in anticipation of day-to-day cash disbursements. Precautionary motive
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CH15 - CHAPTER 15 INTERNATIONAL WORKING CAPITAL MANAGEMENT...

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