INTERNATIONAL CASH

MANAGEMENT

Presented By:
Sushil Regmi
MBA (Finance)
Flow of presentation
Objectives
Centralized perspective of cash flow analysis
Benefit of centralised cash system
Techniques to optimize cash flows
Accelerating cash inflows
Managing Blocked Funds
Leading and lagging
Netting
Minimizing tax on cash flow
Investing excess cash
OBJECTIVES
To manage and control the cash resources of the
company as quickly and efficiently as possible.
Achieve the optimum utilization and conservation
of the funds.
The first one can be achieved by:
 Improving the cash collections & disbursements
 By accurate and timely forecast of cash flow
pattern
The second objective by:
 Making money available when and where it is
needed
 Minimising the required level of cash balances
 Increasing the risk adjusted return on funds that
can be invested
OBJECTIVES
Minimise the currency exposure risk.
Minimise the country and political risk.
Minimise the overall cash requirement of the
company as a whole without disturbing the
smooth operation of subsidiary or its affiliate.
Minimise the transaction costs.
Full benefits of economies of scale as well as
the benefit of superior knowledge.

CENTRALIZED PERSPECTIVE
OF CASH FLOW ANALYSIS
Centralised cash management group is needed
to monitor and manage the parent subsidiary
and intersubsidiary cash flows.
Centralisation refers to centralisation of
information, reports and more specifically the
decision making process as to cash
mobilization, movement and investment
outlets.
This role is critical since it can often benefit
individual subsidiaries in need of funds or
overly exposed to exchange rate risk.
Benefit of centralised
cash system
Maintaining minimum cash balance during the
year.
Helping the centre to generate maximum
possible return by investing all cash
resources optimally.
Judiciously manage the liquidity requirements
of centre.
Helping centre to take complete advantage of
netting.
Optimally utilizing the various hedging
strategies to minimize the foreign exchange
exposure.
Achieve max. utilization of transfer pricing
mechanism to enhance the profitability and
 Cash flow of overall mnc
Interest and/or principal on
 excess cash invested by subsidiary Purchase of
securities
Loans
 Short term securities
Funds recd. From
sales of
Subsidiary 1 securities
Ex Long term
be ces investment
in s c
ve a s
Long term projects
st h
ed t o
Parent
Funds for
supplies

Repayment on loans
sh
ca

Sources of debt
ed
ss

Loans
st
to xc e

ve
in
E
be

Subsidiary 2 Fees and part Funds paid by new

Of earnings Stock issues

Sources of debt
Loans Cash dividends

Interest and/or principal on

excess
Techniques to optimize cash
flows
Accelerating cash inflows
Managing blocked funds
Leading and lagging
Netting
Minimizing tax on cash flow
Accelerating cash inflows
The more quickly the inflows are received, the
more quickly they can be invested or used for
other purposes
MNC may establish lockboxes around the world
Preauthorized payment, which allows a
corporation to charge a customer’s bank
account up to some limit
Online payment solution
Managing Blocked Funds
In some cases, the host country may block
funds that the subsidiary attempts to send to
the parent.
The parent may instruct the subsidiary to
obtain financing from a local bank rather than
from the parent
Prior to making a capital investment in a
foreign subsidiary, the parent firm should
investigate the potential of future fund
blockage.
The various methods for moving blocked funds
are transfer pricing strategies, leading and
LEADING AND LAGGING
Used to optimise cash flow movements by
adjusting the timing of payment to reflect
expectations about future currency
movements.
MNCs can accelerate (lead) the timing of
foreign currency payments by modifying the
credit terms extended by one unit to another.
It is adopted by MNCs in order to reduce
foreign exchange exposure or to increase
available working capital.
Co. generally accelerate the hard currency
payables and delay the payments of soft
currency payables so as to reduce foreign
exchange exposure.
It is also a means of shifting liquidity among
affiliates and the technique depends on
opportunity cost of both the paying unit and
the receipient.
NETTING
Netting, is a technique of optimising cash flow
movements with the joint effort of
subsidiaries.
It involves the reduction of administration and
transaction costs that result from currency
conversion.
Netting is of two type:
Bilateral netting system and multilateral
netting system
BILATERAL NETTING
It involves transaction between the parent and
a subsidiary or between two subsidiaries.

MULTILATERAL NETTING


Under this system, each affiliate nets all its

interaffiliate receipts against all its
disbursements.
It then transfer or receives the balance,
depending on whether it is a net receiver or a
payer.
 Bilateral netting: an
Example
 Bilateral Netting would reduce the number of
foreign exchange transactions by half:

$2
$1
0$ 3
0
0
$4
0$ 2 0 $1
$1
$ 1$ 2$ 3 5 $ 3 $0 1$04 0
0 5 5 $2 0
5 $60
$2
$0$ 13
00
 Multilateral Netting: an
Example
Consider simplifying the bilateral netting with


multilateral netting:

$ 1$ 01 $1
0 5
$$$$44324 $1
$$11$$21 0000 5 $10
55 50
$1
0
$1
0
 Netting with Central
Depository
Some firms use a central depository as a cash


pool to facilitate funds mobilization and reduce

the chance of misallocated funds.

$55 $15
Central
deposito
ry
$40
 Netting with Central
Depository
Some firms use a central depository as a cash


pool to facilitate funds mobilization and reduce

the chance of misallocated funds.

$55 $15
Central
deposito
ry
$40
Minimizing tax on cash
flow
MNC must consider the tax consequences of
altering its cash flow
Another possible strategy to deal with such
high taxation is to adjust the transfer pricing
policy
Some limitations on an adjustment in the
transfer pricing policy
Financing strategy may be used to deal with
high taxation
Establishment of a reinvoicing center
Investing excess cash
Treasury Bills
Govt. agency notes
Demand deposits
Time deposits
Deposits with NBFCs
Certificate of deposits
Commercial paper
Temporary corporate loans

BIBLIOGRAPHY
International Financial Management
• EUN / RESNICK

International Financial Management

• MADHU VIZ

Multinational Financial Management

• ALAN C. SHAPIRO