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1、CHAPTER 19,Short-Term Financing: Managing Current Assets,PART 1 International Cash Management,INTERNATIONAL CASH MANAGEMENT,I. INTERNATIONAL CASH MANAGEMENT A. Seven Key Areas Involve Issues about 1. Organization 2. Collection/Fund Disbursement 3. Interaffiliate Payments 4. Investment of Excess Fund
2、s 5. Optimal Global Cash Balances 6. Cash Planning/Budgeting 7. Bank Relations,INTERNATIONAL CASH MANAGEMENT,B. Goals of an International Cash Manager: similar to domestic manager 1. Quick and efficient cash control 2. Optimal conservation and usage response,INTERNATIONAL CASH MANAGEMENT,Issue (#1):
3、 Centralize Organization 1. Advantages: a. Efficient liquidity levels b. Enhanced profitability c. Quicker headquarter,INTERNATIONAL CASH MANAGEMENT,1. Advantages (cont) d. Decision making enhanced e. Better volume currency quotes f. Greater cash management expertise g. Less political risk,INTERNATI
4、ONAL CASH MANAGEMENT,Issue (#2): Collection/Disbursement of Funds 1. Key Element: Accelerate collections 2. Acceleration Methods: a. Electronic fund transfers b. Mobilization centers,INTERNATIONAL CASH MANAGEMENT,3. Methods to Expedite Cash Payments a. Wire cash transfers b. Establish accounts in cl
5、ients bank c. Negotiate with banks - obtain value dating,INTERNATIONAL CASH MANAGEMENT,Issue (#3): Interaffiliate Payments Use Payments Netting 1. Definition: -offset payments of affiliate receivables/payables -net amounts only are transferred.,INTERNATIONAL CASH MANAGEMENT,2. Create Netting Center
6、a. set up a subsidiary in a location with minimal exchange controls b. Coordinate interaffiliate payment flows c. Netting Centers value: a direct function of the volume of transfers.,INTERNATIONAL CASH MANAGEMENT,Issue (#4): Excess Funds Investment 1. Major task: a. determine minimum cash balances b
7、. short-term investment of excess balances,INTERNATIONAL CASH MANAGEMENT,2. Requirements: a. Forecast of cash needs b. Knowledge of minimum cash position,INTERNATIONAL CASH MANAGEMENT,3. Investment Selection Criteria: a. Degree of Government regulations b. Market structure c. Leniency of Foreign tax
8、 laws,INTERNATIONAL CASH MANAGEMENT,Issue (#5) Optimal Global Cash Balances 1. Establish centrally managed cash pool 2. Require affiliates to hold minimum amounts,INTERNATIONAL CASH MANAGEMENT,3. Benefits of Optimal Global Cash Balances a. Less outside borrowing needed b. More excess fund for invest
9、ment c. Reduced internal expense d. Reduced currency exposure,INTERNATIONAL CASH MANAGEMENT,Issue (#6) Cash Planning and Budgeting,INTERNATIONAL CASH MANAGEMENT,Issue (#7) Bank Relations 1. Good Relations Will Avoid a. Lost interest income b. Overpriced services c. Redundant services,INTERNATIONAL C
10、ASH MANAGEMENT,2. Common Bank Relations Problems a. Too many banks b. High costs such as compensating balances c. Inadequate reporting d. Excessive clearing delays,ACCOUNTS RECEIVABLE MANAGEMENT,II. ACCOUNTS RECEIVABLE MANAGEMENT A. Trade Credits extended in anticipation of profit by 1. expanded sal
11、es volume 2. retaining existing customers,ACCOUNTS RECEIVABLE MANAGEMENT,B. Credit Terms Should Consider 1. Sales force customer selection criteria 2. Adjusting sales bonuses for cost of credit sales.,INVENTORY MANAGEMENT,III. INVENTORY MANAGEMENT A. Problems: MNCs seem to have more difficulties due
12、 to 1. Long,variable transits 2. Lengthy customs procedures,INVENTORY MANAGEMENT,B. Issue: Production Location 1. Overseas location may lead to higher inventory carrying costs due to a. larger amounts of work-in- process b. more finished goods 2. Why?,INVENTORY MANAGEMENT,C. Subsidiary Practice know
13、n as: Advanced Inventory Purchases or inventory stockpiling,INVENTORY MANAGEMENT,D. Reason for Stockpiling: reduce risk of shipping delays Results of Stockpiling: Higher carrying costs F. Solution to higher carrying costs: Adjust affiliates profit margins to reflect added costs.,CHAPTER 19,PART 2 Sh
14、ort-Term Financing,SHORT-TERM FINANCING,IV. SHORT-TERM FINANCING A. Strategy 1. Identify: 3 key factors 2. Formulate/evaluate: objectives 3. Describe: available options 4. Develop a methodology: to calculate/compare costs,EIR = The Effective Interest Rate,SHORT-TERM FINANCING,B. Key Factors 1. Devia
15、tions from Intl Fisher Effect? a. If yes trade-off required between cost and exchange risk b. If no costs are same everywhere,SHORT-TERM FINANCING,2. Does Interest Rate Parity Hold? a. Yes. Currency is irrelevant. b. No. Cover costs may differ -added risk may mean the forward premium/discount does n
16、ot offset interest rate differentials.,SHORT-TERM FINANCING,3. Political Risk: If high, a. MNCs should 1.) maximize local financing. 2.) Faced with confiscation or currency controls, fewer assets at risk,SHORT-TERM FINANCING OBJECTIVES,C. Short-Term Financing Objectives 1. Possible Objectives: a. Minimize expected cost. b. Minimize risk without regard to cost.,SHORT-TERM FINANCING OBJECTIVES,D. Short-Term Financing Options 1. Three Possibilities a. I
