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Int Cash Management
Int Cash Management
CASH
MANAGEMENT
International Financial Management
by Jeff Madura
Hello!
Subsidiary Revenue
Subsidiaries’ sales volume may be more volatile than if the goods
were only sold domestically. Accounts receivable management is
an important part of the subsidiary’s working capital management
because of its potential impact on cash inflows.
Multinational Subsidiary Dividend Payment
When dividend payments and fees are known in advance and
Working Capital denominated in the subsidiary's currency, forecasting cash flows is
Management easier.
r (1 i f )(1 e f ) 1
where r = effective yield on foreign deposit,
if = quoted interest rate,
ef = percentage change in value of currency
Implications of interest rate parity:
Investing Excess Short term investing can be done on uncovered basis
Cash if IRP holds.
Use of forward rate as a forecast
◦ Forward rate serves as a break-even point to assess
short term investment decision.
◦ Relationship with International Fisher Effect: if IRP
holds and forward rate is an unbiased predictor of
future spot rate, then we can expect IFE to hold.
◦ Conclusions about the Forward Rate: Exhibit 21.4
Exhibit 21.4 Considerations When Investing Excess Cash
Deriving ef that equates foreign and domestic yields
Use of Exchange 1 r
Rate Forecasts 1 e f
1 i f
Dynamic hedging
strategy of applying a hedge when the currencies held are
expected to depreciate and removing the hedge when the
currencies held are expected to appreciate.
SUMMARY
MNCs manage their working capital, which includes short-term
assets such as inventory, accounts receivable, and cash.
Multinational management of working capital is complex for
MNCs that have foreign subsidiaries because each subsidiary
must have adequate working capital to support its operations.
The MNC’s parent may use a centralized perspective in order
to monitor cash positions and to ensure that funds can be
transferred among subsidiaries to accommodate cash
deficiencies.
MNCs can possibly achieve higher returns when investing excess cash
in foreign currencies that either have relatively high interest rates or may
appreciate over the investment period. If the foreign currency
depreciates over the investment period, however, this may offset any
interest rate advantage of that currency.
Thanks!
Thanks!