Business
International Cash Management
International cash management involves the efficient handling and control of a company's cash flows across different countries. It encompasses strategies for optimizing liquidity, managing foreign exchange risk, and minimizing transaction costs. This process often involves coordinating with banks and financial institutions to ensure effective cash management across various international locations.
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10 Key excerpts on "International Cash Management"
eBook - ePub- Dirk Neumann, Lawrence Liang(Authors)
- 2020(Publication Date)
- SAP PRESS(Publisher)
Infrastructure Implementing a cash management infrastructure for the company that allows you and your team to get your job done and that enables you to accurately and efficiently manage and control cash. A cash management infrastructure involves two main components: the systems (e.g., cash management in SAP S/4HANA) that support your processes and provide you with the accurate and timely information on cash positions, cash flows, and associated risks, and the appropriate bank services, such as an international account structure, international and/or otherwise cash pools, payment and collection factories, and a netting program.Risk management Assessing, monitoring, and controlling the risk your company is exposed to, including commercial, foreign currency, interest rate, commodity, and country risk.Managing cash is already a challenge if you’re operating in a mostly domestic environment, but after you start managing cash for a multinational corporation (MNC), the complexities increase exponentially. Although the objectives for International Cash Management are largely the same as for domestic or local cash management, the need to operate within an environment of different jurisdictions, currencies, languages, time zones, cultures, and so on makes International Cash Management operations more cumbersome. The way you go about achieving your objectives depends on your company’s business and business relations. If you conduct a high volume of business in a foreign currency, or you’re dependent on large capital expenditure projects, you’ll be operating according to the cash management needs inherent to your business. Managing and limiting exposure, rather than liquidity, becomes your primary objective, so you may want to keep better control over exposures originating from foreign currency operations.Essentially, the complexity of International Cash Management is driven by a series of external influences and the different ways in which business and banking are conducted in other parts of the world. These influences include the following:
eBook - PDFGlobal Corporate Finance
Text and Cases
- Suk H. Kim, Seung H. Kim(Authors)
- 2009(Publication Date)
- Wiley-Blackwell(Publisher)
More specifically, international cash managers try to attain the traditional objectives of domes-tic cash management on a global basis: (1) to minimize the cost of funds, (2) to improve liqu-idity, (3) to reduce risks, and (4) to improve the return on investment. First, with interest rates of more than 10 percent in many countries, considerable savings are possible when the cost of funds is lowered. MNCs should attempt to reduce their overall cost of funds by increasing internal funds and reducing borrowings. Second, international cash managers must attempt to improve liquidity on a global basis. Cer-tainly, it is difficult to improve liquidity on a worldwide basis, because government regulations prohibit the free transfer of funds. But MNCs can use centralized cash management and elec-tronic fund transfers to improve their overall liquidity. Third, International Cash Management involves a variety of risks, such as political, economic, and exchange risks. Insurance, careful negotiations, forward contracts, and currency options may be used to reduce these risks. Fourth, a variety of ratios, such as return on investment and return on net worth, are often used to measure performance. The improvement of financial performance is perhaps the most important aspect of treasury management. 15.2.2 Floats To carry out its operations, an MNC causes a steady flow of funds to take place among its family members. These fund flows cannot avoid the problem of float , which refers to the status of funds in the process of collection. From a domestic point of view, float represents only the temporary loss of income on funds that are tied up in the process of collection. In international operations, however, the problem of float is twofold: (1) the loss of income on the funds tied up during the longer transfer process; and (2) their exposure to foreign-exchange risk during the transfer period.
eBook - ePubGlobal Corporate Finance
A Focused Approach
- Kenneth A Kim, Suk H Kim(Authors)
- 2014(Publication Date)
- WSPC(Publisher)
Cash centers are usually located in the major financial centers of the world such as New York and London. Brussels has become popular as a cash center for companies operating in Europe. Other popular locations for cash centers are tax-haven countries, such as Luxembourg, the Bahamas, Bermuda, and the Netherlands. These countries offer most of the prerequisites for a corporate cash center: political and economic stability, freely convertible currency, access to international communications, and well-defined legal procedures.11.2.5. Investing Excess Funds
Along with optimization of cash flows, the other key function of International Cash Management is to make certain that excess funds are wisely invested. This section discusses three types of portfolio management and portfolio guidelines.11.2.5.1. Portfolio management
There are at least three types of portfolio management available to international cash managers. First, MNCs can optimize cash flows worldwide with a zero portfolio. All excess funds of subsidiaries are remitted to the parent and then used to pay the parent’s short-term debts. Second, they can centralize cash management in third countries such as tax-haven countries and invest funds in marketable securities. Third, they can centralize cash management at headquarters with subsidiaries holding only minimum amounts of cash for transaction purposes.11.2.5.2. Portfolio guidelines
Most surplus funds are temporary. If MNCs invest funds in marketable securities such as Treasury bills, they should follow sound portfolio guidelines. First, instruments in the shortterm investment portfolio should be diversified to maximize the yield for a given amount of risk or to minimize the risk for a given amount of return. Second, for companies that hold marketable securities for near-future needs of liquidity, marketability considerations are of major importance. Third, the maturity of the investment should be tailored to the company’s projected cash needs. Fourth, the securities chosen should be limited to those with a minimum risk of default. Fifth, the portfolio should be reviewed daily to decide what new investments will be made and which securities will be liquidated.
eBook - PDF- Joao Heitor De Avila Santos(Author)
- 2019(Publication Date)
- Society Publishing(Publisher)
Today MNC make recurrent use of standard bank swaps. 7.2.2 Cash Management The prior section handled various tools made to decrease the impact of exterior environmental changes over a firm’s financial resources. Usually, a company does not desire to realize any financial benefits by using these International Business Financial Management Strategy 111 tools; the key goal is to avoid deficits. More often than not there reaches least one exterior party involved, like a loan provider or another company (Hekman, 2004). This section explores all of the internal tools open to a company. Although the key target in using these tools is to reduce exposure hazards, there is enough of possibility to realize financial benefits by reducing fees and optimizing cash era and cash uses among a firm’s subsidiaries. There are several ways a MNC can maneuver liquid investments to perform cash management targets without violating duty laws and/or forex regulations. The money management goals of the MNC are; • To secure liquidity • To reduce financial costs • To reduce taxes These overall goals result in various specific duties that must definitely be performed by the financial supervisor: 1. Estimate net cash flow for each and every subsidiary 2. Set minimum degrees of bank deposits 3. Set minimum degrees of liquid investments holdings 4. Select an approach to maneuvering liquid investments: a. Adjusting copy prices b. Charging fees and royalties c. Making inter-subsidiary loans d. Controlling intercompany dividends Although most large MNC have their own financial institutions , which for those sensible purposes perform the financial ventures formally handled by way of a standard bank, for purposes of illustration a loan company will be looked at to be the automobile by which all financial trades are handled. The lender serves as a clearinghouse for all those orders among a firm’s subsidiaries and between your parent firm and each one of the subsidiaries.
- Alan W. Steiss, Emeka O. Nwagwu, Alan W. Steiss, Emeka O. Nwagwu(Authors)
- 2001(Publication Date)
- Routledge(Publisher)
3 Cash Management Cash management is the process of maximizing the liquid assets of an organiza tion through the acceleration of receivables and the disciplined control of dis bursements. Cash management assures that an organization’s liquid assets are planned, organized, and controlled to meet immediate financial obligations in a timely manner and that temporarily idle funds are invested in safe and profitable securities from which they can be drawn quickly as the need arises. Cash man agement focuses on revenues as well as expenditures so as to avoid three poten tial problems: (1) a liquidity crisis, when an organization has insufficient cash to meet its obligations; (2) the inability to accelerate receivables and deposit them in the organization’s accounts; and (3) the failure to invest funds that may not be needed for days, weeks, or months. Temporarily idle cash balances draw no in terest and hence, represent a loss of potential revenue. 1 MAXIMIZING RETURNS ON CASH FLOWS Most local officials must continuously seek additional funds to provide an in creasing array of public services. As the same time, many jurisdictions may be losing significant revenue by not utilizing the cash management techniques to maximize returns on their cash flows. Numerous constraints may be encoun tered, however, in efforts to maximize the benefits from these idle funds. 67 68 Chapter 3 1.1 Impetus for Cash Management Problems of cash management are rarely discussed in the literature of public fi nancial administration. Even less attention has been given to the constraints that may impede efforts to maximize returns on the investment of temporarily idle funds. Local governments and other public organizations stand to realize consid erable financial benefits if they manage their resources efficiently. Yet, few pub lic organizations have established specific policy guidelines with regard to the management of cash.
- Jerome B. McKinney(Author)
- 2015(Publication Date)
- Praeger(Publisher)
The bank law changes enacted during the 1990s have increased the number of bank services and better defined their costs. In some ways, these changes have added to the complexity of the variables, constraints, and alternatives that must be understood in fashioning an effective cash management program.Cash management may be defined as a process concerned with two important objectives (1) providing and ensuring maximum cash availability through delaying cash disbursements and expediting cash collections and (2) securing maximum yield on the short-term investment of idle cash. To achieve these objectives, a communication and monitoring system must be in place to identify the point at which revenue is earned and to track when an expenditure payment clears the bank. This action maximizes the cash investment yield, because it minimizes the time lag between the recognition of revenue earnings and their conversion into cash, and it accurately times the dates of expenditures. Cash management is focused on “the conversion of accounts receivable to cash receipts, the conversion of accounts payable to cash disbursements, the rate at which cash disbursements clear a bank account and what is done with the cash balances in the meantime.”3 Cash must be managed to provide required liquidity to meet all maturing obligations, both expected and unexpected. The amount of cash that an entity holds to meet both routine and unforeseen needs involves (1) its willingness to risk running out of cash to meet required demands, (2) its ability to predict cash flows with a high degree of accuracy, and (3) its available lines of credit or reserve borrowing power.Evaluating and Establishing Long-Term NeedsThe cash manager must make certain that the cash management objectives and priorities are specifically defined and consistent with the entity’s overall mission. After this is done, these actions should be reflected in the subsequent policies to be adopted.4 Next, long-term expected cash flow patterns and targets of perhaps three to five years should be set forth. This step provides parameters and general guidelines about revenues and expenditure expectations that will be helpful in developing useful policies. Attention is directed toward those sources of revenues that are subject to wide and unpredictable fluctuations and long-term needs (including borrowing) that must be planned to effectively meet capital expenditure requirements and debt repayments.5
eBook - PDFFundamentals of Finance
Investments, Corporate Finance, and Financial Institutions
- Mustafa Akan, Arman Teksin Tevfik(Authors)
- 2020(Publication Date)
- De Gruyter(Publisher)
Multinational Working-Capital Management Basic principles of working-capital management for a multinational corporation are similar to those of a domestic firm. Tax rates and exchange rates are additional considerations. There are two techniques used for managing working capital: – Leading and lagging strategies – Cash management and positioning of funds Leading and Lagging Strategies. Holding a net asset (long) position in a weak or potentially depreciating currency is not desirable. Leading means selling these as-sets and converting the funds into a stronger currency. Lagging means delaying the collection against a net asset position in a strong currency. In case of a net liability (short) position, two things can be done: – In case of a weakening currency, the payment should be delayed. – In case of a strengthening currency, the payment should be expedited. Cash Management and Positioning of Funds. Funds may be transferred from a subsidiary of the multinational company in country A to another subsidiary in 14.12 Conducting International Business 301 country B such that the foreign exchange exposure and the tax liability is mini-mized. The transfer of funds among subsidiaries and the parent company is done via royalties, fees, and transfer pricing. Transfer pricing is the price charged by a subsidiary or a parent company to other companies that are part of the multina-tional company for its goods and services. 14.13 International Financial Markets The term international financial markets refers to various financial institutions around the world in which multinational firms and governments participate to borrow money or invest surplus funds. The two major international financial markets are the Eurodollar market (Euromarket) and the international bond (Eurobond) market. The Euromarket The Eurodollar market offers short-term and intermediate loans denominated in the U.S. dollar. The maturity date of Eurodollar loans is usually less than 5 years.
eBook - PDF- Robert Parrino, David S. Kidwell, Thomas Bates, Stuart L. Gillan(Authors)
- 2021(Publication Date)
- Wiley(Publisher)
The goal of financial management is the same abroad as it is at home—to maximize the value of the firm. Thus, the financial manager’s job is to seek out international business opportunities in which the value of the expected cash flows exceeds their cost. If this is done, the firm’s international activities will increase the overall value of the firm. We start the chapter by providing some background information about the globalization of the world economy, the rise of multinational corporations, and the key factors that distin- guish domestic from international business transactions. We emphasize that the basic princi- ples of finance remain valid for international business transactions, even though some of the variables used in financial models change. We also introduce two risks that are not present in domestic business transactions: foreign exchange rate risk and country risk. We follow this with discussions of markets for foreign currency exchange and how firms protect themselves from fluctuations in exchange rates. We then explain how multinational firms manage their overseas capital investments and compute the NPVs for these projects. We next turn our attention to global money and capital markets. We pay particular atten- tion to the Euromarket, where large multinational companies adjust their liquidity, borrow short term from banks in the Eurocredit market, and borrow long term in the international bond markets. Finally, we discuss how banks price and structure Eurocredits. LEARNING OBJECTIVE 1. Discuss how the basic principles of finance apply to international financial transactions. Businesses operate in a far different world today than they did only a generation or two ago. Because of the globalization of the world economy, management—including financial management—has changed in many respects. Yet, as you will see, the goals and principles of financial management remain essentially the same. 21.1 Introduction to International Financial Management
eBook - PDF- Alan C. Shapiro, Peter Moles(Authors)
- 2014(Publication Date)
- Wiley(Publisher)
But this doesn’t happen very often.” 6 In this way, the company avoids being overdrawn with one bank while investing with another. 6 “Central Cash Management Step by Step: The European Approach”, Business International Money Report (October 19, 1984): 331. As a result of rapid and pronounced changes in the international monetary arena, the need for more frequent reports has become acute. Firms that had been content to receive information quarterly now require monthly, weekly, or even daily data. Key figures are often transmitted by e-mail or via a corporate intranet. Multinational Cash Mobilization. A multinational cash mobilization system is designed to optimize the use of funds by tracking current and near-term cash positions. The information gathered can be used to aid a multilateral netting system, to increase the operational efficiency of a centralized cash pool, and to determine more effective short-term borrowing and investment policies. The operation of a multinational cash mobilization system is illustrated here with a simple example centered on a firm’s four European affiliates. Assume that the European headquarters maintains a regional cash pool in London for its operating units located in the UK, France, Germany, and Italy. Each day, at the close of banking hours, every affiliate reports to London its current cash balances in cleared funds —that is, its cash accounts net of all receipts and disbursements that have cleared during the day. All balances are reported in a common currency, which is assumed here to be the U.S. dollar, with local currencies translated at rates designated by the manager of the central pool. One report format is presented in Figure 19.5. It contains the end-of-day balance as well as a revised five-day forecast. According to the report for July 12, the Italian affiliate has a cash balance of $400,000.
eBook - PDFManaging Cash Flow
An Operational Focus
- Rob Reider, Peter B. Heyler(Authors)
- 2003(Publication Date)
- Wiley(Publisher)
Outgoing cash is used for purchased parts and material, payroll, man- ufacturing or service provision expenses, sales and marketing, research and devel- opment, capital purchases, and a slew of other costs particular to the specific business under review. These cash inflows and outflows are not produced by the finance or accounting personnel. They result from activities carried out by the operating personnel within the company—the manufacturing, service, engineer- ing, marketing, sales, purchasing, maintenance, and other employees. For a cash management process to work effectively within the company so as to ensure sufficient cash to continue to run the operations, it is essential that the operating activities be run not only to satisfy customers and make profits, but also to conserve and generate cash. That means that the operating personnel cannot leave cash responsibility solely to the accountants. They must be aware of cash flow and its impact on the company as a whole. And most importantly they must carry out their responsibilities in a cash-aware manner. To that end, in this and the following two chapters, we will be discussing some of the major aspects of com- pany operations with the idea that these operational activities, though not specif- ically cash focused, will ultimately determine the cash flow of the organization. CASH MANAGEMENT STUDY The company’s cash management study starts at the top of the organization. That is, top management should define and communicate its strategic plans for the company, including ideas about expansion, retrenchment, and status quo. At the same time, management members should identify the businesses they want to be in, the businesses they do not want to be in, their basic business principles and belief systems, and their expectations for each function within the organization.
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