Chapter_18 - Chapter Outline The Management of...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Outline The Management of Multinational Cash Balances Cash Management Systems in Practice Blocked Funds
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Management of International Cash Balances The size of cash balances The currency denomination Where these cash balances are located
Background image of page 2
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.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Size of Cash Balances Opportunity Costs Trading costs Total cost of holding cash C * Costs in dollars of holding cash Size of cash balance The investment income foregone when holding cash. Trading costs increase when the firm must sell securities to meet cash needs.
Background image of page 4
Choice of Currency By maintaining cash balances in a particular currency, the MNC is essentially speculating (or hedging?) in that currency.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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?
Background image of page 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.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Exposure Netting: an Example Consider a U.S. MNC with three subsidiaries and the following foreign exchange transactions: $10 $35 $40 $30 $20 $25 $60 $40 $10 $30 $20 $30
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/16/2011 for the course FINA 5331 taught by Professor Staff during the Spring '08 term at UT Arlington.

Page1 / 41

Chapter_18 - Chapter Outline The Management of...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online