A multinational corporation can be defined as an entity, which has branches, or subsidiaries spread over many countries. Since multinational corporations have operations in different countries, the financial transactions will also be denominated in multiple currencies. Hence, financial management of short-term assets and liabilities in an MNC is much more important and complex in nature. It involves management of current assets and current liabilities denominated in different currencies.

MNC Working capital  management of current assets and current liabilities of any multinational company who has large number of branches and subsidiaries in different countries. we manage the inventory. our creditors and currency exchange risks. . In simple words. cash. our short term investments.

At international level. company has to take following decisions. 1. . Inventory Management Inventory management means to reduce the carrying and holding cost of inventory.

Only authorized order. all cash is collected in head office. cash is issued from head office.Cash management  Company can use centralized cash management system and decentralized cash management system. Through cash pooling company can use CCM better way. In this system. In centralized cash management system. Every transaction relating to receipt and payment is recorded. company’s cash is deposited in their local financial institutions and banks from different .

Suppose. it is your current liability. For example. If home currency will weak and other country’s currency will strong. currency risk will effect. you have to pay Rs. it will affect your total calculation of working capital. It means. you have to pay your one employee 1000 $ in Indian currency. 50. but due to Indian currency fluctuation. 50.000. For this. 55/ 1$.000 in Indian bank for paying your Indian employees. exchange rate becomes Rs. Today exchange rate is Rs.Currency risk management  In multinational currency management. 50/ 1 $. you have to pay more Rs . you have deposited RS.

There should be proper rules for paying within the time limit. multinational company uses line of credit for paying its small expenses. . In India.Current liabilities management  Every branch’s current liabilities may be different from other branch. interest is charged only when the money is withdrawal for paying expenses. With this. Optimize and improvement in payment process will increase your working capacity.

Multinational Working Capital Management      Funds Availability Additional Risks Movement of Capital Decisions Taxes .

anticipating cash flows over future days. weeks. Investing Surplus Cash – managing anticipated cash surpluses by investing locally or controlling them centrally. Cash Mobilization – moving cash within the firm to the location where needed. or months. . Cash Disbursements – planning procedures for distributing cash. Covering Cash Shortages – managing anticipated cash shortages by borrowing locally. Steps:       Cash Planning .International Cash Management   Goal: Minimize cash balances without reducing operations or increasing risk. Cash Collection – getting cash into the firm as soon as possible.

International Cash Settlements and Processing  Four techniques for simplifying and lowering the cost of settling cash flows between related and unrelated firms     Wire transfers Cash pooling Payment netting Electronic fund transfers .

Multilateral Netting   Netting involves offsetting receivables against payables so that only the net amounts are transferred among affiliates. Types   Bilateral netting Multilateral netting  Payments netting is useful primarily when a large number of separate foreign exchange transactions occur between subsidiaries. .

Financing Working Capital   Financing working capital requirements of a MNC’s foreign affiliates poses a complex decision problem. . Financing options for a subsidiary include:   Intercompany loans from the parent or a sister affiliate. Local currency financing.

Key Factors Underlying the Funding Strategy  Interest Rate   Without forward contracts With forward contracts     Exchange Risk Degree of Risk Aversion Taxes Political Risk .

Local Currency Financing  Bank Loans      Term Loans Line of Credit Overdraft Revolving Credit Agreement Discounting  Commercial Paper .