国际金融市场管理Ch15-International-Cash-Management.ppt

C21-,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,International Cash Management,15,Chapter,South-Western/Thomson Learning 2003,Chapter Objectives,To explain the difference between a subsidiary perspective and a parent perspective in analyzing cash flows;,To explain the various techniques used to optimize cash flows;,To explain common complications in optimizing cash flows;and,To explain the potential benefits and risks of foreign investments.,Cash Flow Analysis:Subsidiary Perspective,The management of working capital has a direct influence on the amount and timing of cash flow:,inventory management,accounts receivable management,cash management,liquidity management,Subsidiary Expenses,International purchases of raw materials or supplies are more likely to be difficult to manage because of exchange rate fluctuations,quotas,etc.,If the sales volume is highly volatile,larger cash balances may need to be maintained in order to cover unexpected inventory demands.,Cash Flow Analysis:Subsidiary Perspective,Subsidiary Dividend Payments,Forecasting cash flows will be easier if the dividend payments and fees(royalties and overhead charges)to be sent to the parent are known in advance and denominated in the subsidiarys currency.,Cash Flow Analysis:Subsidiary Perspective,Subsidiary Liquidity Management,After accounting for all cash outflows and inflows,the subsidiary must either invest its excess cash or borrow to cover its cash deficiencies.,If the subsidiary has access to lines of credit and overdraft facilities,it may maintain adequate liquidity without substantial cash balances.,Cash Flow Analysis:Subsidiary Perspective,Centralized Cash Management,While each subsidiary is managing its own working capital,a centralized cash management group is needed to monitor,and possibly manage,the parent-subsidiary and intersubsidiary cash flows.,International cash management can be segmented into two functions:,optimizing cash flow movements,and,investing excess cash.,Centralized Cash Management,The centralized cash management division of an MNC cannot always accurately forecast the events that may affect parent-subsidiary or intersubsidiary cash flows.,It should,however,be ready to react to any event by considering,any potential adverse impact on cash flows,and,how to avoid such adverse impacts.,Techniques to OptimizeCash Flows,Accelerating Cash Inflows,The more quickly the cash inflows are received,the more quickly they can be invested or used for other purposes.,Common methods include the establishment of,lockboxes,around the world(to reduce mail float)and,preauthorized payments,(direct charging of a customers bank account).,Intersubsidiary Payments Matrix,Canada France Japan Switzerland U.S.,Canada,40,90,20,40,France,60,30,60,50,Japan,100,30,20,30,Switzerland,10,50,10,50,U.S.,10,60,20,20,Thousands of US$Owed to Subsidiary in:,Payments,Matrix,Canada France Japan Switzerland U.S.,Canada,0,0,10,30,France,20,0,10,0,Japan,10,0,10,10,Switzerland,0,0,0,30,U.S.,0,10,0,0,Net Thousands of US$Owed:,Netting,Schedule,Managing Intersubsidiary Cash Transfers,A subsidiary with excess funds can provide financing by paying for its supplies earlier than is necessary.This technique is called,leading,.,Alternatively,a subsidiary in need of funds can be allowed to lag its payments.This technique is called,lagging,.,Techniques to OptimizeCash Flows,Complicationsin Optimizing Cash Flows,Company-Related Characteristics,When a subsidiary delays its payments to the other subsidiaries,the other subsidiaries may be forced to borrow until the payments arrive.,Government Restrictions,Some governments may prohibit the use of a netting system,or periodically prevent cash from leaving the country.,Investing Excess Cash,Excess funds can be invested in domestic or foreign short-term securities,such as Eurocurrency deposits,bills,and commercial papers.,Sometimes,foreign short-term securities have higher interest rates.However,firms must also account for the possible exchange rate movements.,Short-Term Interest Rates,U.K.,Japan,Canada,Germany,U.S.,Centralized Cash Management,Centralized cash management allows for more efficient usage of funds and possibly higher returns.,When multiple currencies are involved,a separate pool may be formed for each currency.The investment securities may also be denominated in the currencies that will be needed in the future.,Investing Excess Cash,Determining the Effective Yield,The effective rate for foreign investments,r,f,=(,1,+,i,f,)(,1,+,e,f,)1,where,i,f,=the quoted interest rate on the investment,e,f,=the%,D,in the spot rate,If the foreign currency depreciates over the investment period,the effective yield will be less than the quoted rate.,Investing Excess Cash,Implications of Interest Rate Parity(IRP),A foreign currency with a high interest rate will normally exhibit a forward discount that reflects the differential between its interest rate and the investors home interest rate.,However,short-term foreign investing on an uncovered basis may still result in a higher effective yield.,Investing Excess Cash,Use of the Forward Rate as a Forecast,*,as compared to the yield for domestic investments,IRP,holds?,Investment,yield*,Type of,Investment,Scenario,Yes,Covered,Similar,Forward rate accurately,predicts future spot rate,Yes,Uncovered,Similar,Forward rate over-,estimates future spot rate,Yes,Uncovered,Lower,Forward rate under-,estimates future spot rate,Yes,Uncovered,Higher,Forward premium(discount),exceeds(is less than),interest rate differential,No,Covered,Higher,Forward premium(discount),is less than(exceeds),interest rate differential,No,Covered,Lower,Forward rate forecasts,future spot rate with no bias,Yes,Uncovered,Similar on,average,Use of Exchange Rate Forecasts,Given an exchange rate forecast,the expected effective yield of a foreign investment can be computed,and then compared with the local investment yield.,It may be useful to use probability distributions instead of point estimates,or to compute the break-even exchange rate that will equate foreign and local yields.,Investing Excess Cash,Diversifying Cash Across Currencies,If an MNC is not sure of how exchange rates will change over time,it may prefer to diversify its cash among securities that are denominated in different currencies.,The degree to which such a portfolio will reduce risk depends on the correlations among the currencies.,Investing Excess Cash,Current interest rates and exchange rates are available at.,Interest rate and exchange rate forecasts can be found at.,Online Application,Impact of International Cash Managementon an MNCs Value,E(CF,j,t,)=expected cash flows in currency,j,to be received by the U.S.parent at the end of period,t,E(ER,j,t,)=expected exchange rate at which currency,j,can be converted to dollars at the end of period,t,k,=weighted average cost of capital of the parent,Returns on International Cash Management,Chapter Review,Techniques to Optimize Cash Flows,Accelerating Cash Inflows,Minimizing Currency Conversion Costs,Managing Blocked Funds,Managing Intersubsidiary Cash Transfers,Complications in Optimizing Cash Flows,Company-Related Characteristics,Government Restrictions,Characteristics of Banking Systems,Chapter Review,Investing Excess Cash,How to Invest Excess Cash,Centralized Cash Management,Determining the Effective Yield,Implications of Interest Rate Parity,Use of the Forward Rate as a Forecast,Use of Exchange Rate Forecasts,Diversifying Cash Across Currencies,Use of Dynamic Hedging to Manage Cash,Chapter Review,Impact of International Cash Management on an MNCs Value,