C H A P T E R 21
International Cash
Management
Chapter Overview
A. Cash Flow Analysis: Subsidiary
Perspective
B. Centralized Cash Management
C. Techniques to Optimize Cash Flows
D. Complications in Optimizing Cash
Flows
E. Investing Excess Cash
Chapter 21 Objectives
This chapter will:
A. Explain the difference in analyzing cash
flows from a subsidiary perspective and
from a parent perspective
B. Explain the various techniques used to
optimize cash flows
C. Explain common complications in
optimizing cash flows
D. Explain the potential benefits and risks
from foreign investing
A. Cash Flow Analysis: Subsidiary
Perspective
1. Subsidiary Expenses
2. Subsidiary Revenue
3. Subsidiary Dividend Payments
4. Subsidiary Liquidity Management
B. Centralized Cash Management
1. MNCs commonly use centralized cash
management to monitor and manage the
parent-subsidiary and intersubsidiary cash
flows.
2. This role is critical since it can often benefit
individual subsidiaries in need of funds or
overly exposed to exchange rate risk.
Cash Flow of the Overall MNC
21.1
C. Techniques to Optimize Cash
Flows
1. Accelerating Cash Inflows
2. Minimizing Currency Conversion Costs
3. Managing Blocked Funds
4. Managing Intersubsidiary Cash Transfers
D. Complications in Optimizing
Cash Flows
1. Company-Related Characteristics
2. Government Restrictions
3. Characteristics of Banking Systems
E. Investing Excess Cash
1. How to Invest Excess Cash
Short-Term Annualized Interest Rates Among Countries
(as of February 2004)
21.4
E. Investing Excess Cash
2. Centralized Cash Management
a. Centralization When Subsidiaries
Use the Same Currency
b. Centralized Cash Management of
Multiple Currencies
c. Impact of Technology on
Centralized Cash Management
E. Investing Excess Cash
3. Determining the Effective Yield
4. Implications of Interest Rate Parity
E. Investing Excess Cash
5. Use of the Forward Rate as a
Forecast
a. Relationship with the
International Fisher Effect
b. Conclusion about the Forward
Rate
E. Investing Excess Cash
6. Use of Exchange Rate Forecasts
a. Use of Probability Distributions
7. Diversifying Cash across Currencies
8. Dynamic Hedging