1. International Cash Management
C H A P T E R 21
International Cash Management

2. 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

3. 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

4. A. Cash Flow Analysis: Subsidiary Perspective
1. Subsidiary Expenses
2. Subsidiary Revenue
3. Subsidiary Dividend Payments
4. Subsidiary Liquidity Management

5. 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.

6. Cash Flow of the Overall MNC
21.1

7. C. Techniques to Optimize Cash Flows
1. Accelerating Cash Inflows
2. Minimizing Currency Conversion Costs
3. Managing Blocked Funds
4. Managing Intersubsidiary Cash Transfers

8. D. Complications in Optimizing Cash Flows
1. Company-Related Characteristics
2. Government Restrictions
3. Characteristics of Banking Systems

9. E. Investing Excess Cash
1. How to Invest Excess Cash

10. Short-Term Annualized Interest Rates Among Countries
(as of February 2004)
21.4

11. 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

12. E. Investing Excess Cash
3. Determining the Effective Yield
4. Implications of Interest Rate Parity

13. 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

14. E. Investing Excess Cash
6. Use of Exchange Rate Forecasts
a. Use of Probability Distributions
7. Diversifying Cash across Currencies
8. Dynamic Hedging