FIN4320_Lecture_18_International(41p)

FIN4320_Lecture_18_International(41p) - International Cash...

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International Cash Management
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Introduction to International Cash Management Increased Globalization of Business Increased Competition in the Domestic  Marketplace Need for Cash Management Services  on a Global Bases
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International Cash Management International Cash Management Issues More Complex Cash Flows Foreign Exchange Exposure Political Issues
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International Cash Management Foreign Exchange Markets Spot Market Quote for delivery up to two business days in  the future Forward Market Quote for delivery more than two business days  in the future
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International Cash Management Foreign Exchange Markets Rate-Quoting Conventions Foreign Exchange Rates – Number of units of one currency for one unit of another  currency U.S. $ Equivalent Currency per U.S. $ DM .5796 1.7243 Bid-Offer Spreads – Bid rate is the rate the bank will buy or you can sell – Offer rate is the rate the bank will sell or you can buy –  Bid rate is lower, offer rate is higher If quote is DM 1.72 .74 then the bid is 1.72 DM/$ and the offer is 1.74 DM/$
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International Cash Management Foreign Exchange Markets Rate-Quoting Conventions Par If spot and forward market prices are the same Discount If a currency is selling for less in the forward market  than the spot market (losing purchasing power) Spot .6013 £/$ or 1.6630 $/£ Forward (6 month) .6062 £/$ or 1.6496 $/£ Pound is selling at a discount.
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International Cash Management Foreign Exchange Markets Rate-Quoting Conventions Premium If a currency is selling for more in the forward market  than the spot market (gaining purchasing power) Spot 131.60 ¥/$ or .007599 $/¥ Forward (6 month) 128.15 ¥/$ or .007803 $/¥ Yen is selling at a premium
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International Cash Management International Cash Management Issues Centralized Control Decentralized Control Hybrid Shared Service Center (SSC) Maintain back-office business processes  and operations. In-House Banking
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International Banking Systems Bank Regulations and Operations Central Bank May or may not have the powers of Federal Reserve Bank and Company Relationships Number of Banks Most countries have fewer banks than the U.S. Restrictions on Demand Deposit Accounts Most other countries allow interest on corporate demand  deposit accounts Little need for zero balance or sweep accounts Overdrafts on Demand Deposit Accounts
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International Banking Systems Bank Regulations and Operations Value Dating System where the bank sets the dates for  crediting deposits and debiting checks May be negotiable, depending on the bank and  country Forward Value Date Date when the firm will get credit for deposits Back Value Date Date when the bank will debit checks written on the  account
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FIN4320_Lecture_18_International(41p) - International Cash...

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