Initially open the inflow account and later liberalize the outflow account.
Approach to simultaneously liberalize control of inflow and outflow account.
Q.5 Detail domestic and international cash management system [10 Marks]
Ans;-The strategy of a company which has its businesses in many nations and efficientlymanages its cash and liquidity is calledmultinational cash management programme. The maingoal of multinational cash management is the utilisation of local banking and cashmanagementservices.Multinational companies are those that operate in two or more countries. Decision making withinthe corporation iscentralised in the home country or decentralised across the countries where theorganisation does its business.The reasons for which the firmsexpand into other countries are as follows:
Seeking new markets and raw materials
Seeking new technology and product efficiency.
Preventing the regulatory obstacles.
Retaining customers and protecting its processes
Expanding its business.Several factors which distinguish multinational cash management from domestic cashmanagement are as follows:
Different currency denominations
Political risk and other risk.
Economic and legal complications.
Role of governments
Language and cultural differences.
Difference in tax rates, import duties.The principle objective of multinational cash management programme is to maximise acom
financial resources by taking benefits from all liability provisions, payable periods.The multinational cash management programme effectivelyachieve its goals by using excess cash flow from some units across the globe to extend cash needs in other units which is called in-
housebanking and by relocating funds for tax and foreign exchange management throughrepricing and invoicing.During multinational cashmanagement system payments by customers to
branchesare basically handled through a local bank. The payments betweenthe branches and the parentcompany are managed through the branches, correspondents or associates of the parent company.Throughthe use of electronic reporting systems a parent company observes cash balances in itsforeign local banks.Multinational cash managementprogramme specifically evaluate its techniques by timing of billing, use of lockboxes or intercept points, negotiated value range.Themultinational cash management system involves exchange rate risk which occurs when thecash flow of one currency during transformationto another currency the cash value getsdeclined. It occurs due to the change in exchange rates. The exchange rates are determined byastructure which is called the international monetary system.For example, Wincor Nixdorf played an innovative role in enhancing cashhandling betweenvarious countries.
focus was on the entire process chain which started from head officeto stores, crediting to theretail
account, head office to branches and so on.
served several countries with its innovative hardware andsoftware elements, ITservices to side operations and consulting services to develop custom optimised solutions.
Q.6 Distinguish between CRR and SLR [10 Marks]
Ans:- Cash Reserve Ratio
Cash Reserve Ratio (CRR) is a country’s central bank regulation that sets the minimum reservesfor
banks to hold for their customer deposits and notes. These reserves are considered to meet thewithdrawal demands of the customers. Thereserves are in the form of authorised currency storedin a bank treasury (vault cash) or with the central bank. CRR is also called liquidity ratio as
itcontrols money supply in the economy. CRR is occasionally used as a tool in monetary policiesthat influence the country’s e
conomy.CRR inIndia is the amount of funds that a bank has to keep with the RBI which is the centralbank of the country. If RBI decides to increase CRR, then
the banks’ available cash drops. RBIpractices this method, that is, increases CRR rate to drain out ex
cessive money from banks. TheCRR inthe economy as declared by RBI in September 2010 is 6 percent.An organisation that holds reserves in excess amount is said to hold excessreserves.
The following are the effects of CRR on economy:
CRR influences an economy’s money supply by effecting the potential of banks
CRR influences inflation in an organization
CRR stimulates higher economic activity by influencing the liquidity
Statutory Liquidity Ratio
Statutory Liquidity Ratio (SLR) is the percentage of total deposits that banks have to invest ingovernment bonds and other approved securities.It means the percentage of demand and timematurities that banks need to have in forms of cash, gold and securities like GovernmentSecurities(G-Secs). As gold and government securities are highly liquid and safe assets they areincluded along with cash.In India, RBI determines the