CHAPTER 19 20 Multinational Cash Management.docVIP

CHAPTER 19 Multinational Cash Management The Management of International Cash Balances CASE APPLICATION: Teltrex’s Cash Management System Bilateral Netting of Internal and External Net Cash Flows Reduction in Precautionary Cash Balances Cash Management Systems in Practice Transfer Pricing and Related Issues CASE APPLICATION: Mintel Products Transfer Pricing Strategy International Finance in Practice: Transfer Pricing Is the Most Important Tax Issue Miscellaneous Factors Blocked Funds Summary CASE APPLICATION 1: Efficient Funds Flow at Eastern Trading Company CASE APPLICATION 2: Eastern Trading Company’s Optimal Transfer Pricing Strategy CASE APPLICATION 3: Eastern Trading Company’s New MBA The Management of International Cash Balances Efficient cash management techniques can: reduce the investment in cash balances and foreign exchange transaction expenses provide for maximum return from the investment of excess cash result in borrowing at lowest rate when a temporary cash shortage exists all of the above Answer: d - p. 423 Cash management refers to: The decision to grant credit to customers or to remain “cash and carry”. The investment the firm has in transaction balances and precautionary balances. A domestic firm’s investment in foreign currency None of the above Answer: b) Precautionary cash balances Are necessary in case the firm has underestimated the amount of cash need to cover transactions Are necessary to cover scheduled outflows of funds during a cash budgeting period. Both a) and b) None of the above Answer: a) CASE APPLICATION: Teltrex’s Cash Management System Use this information to answer the next two questions. ABC Trading Company of Singapore purchases spices in bulk from around the world, packages them into consumer size quantities and sells them through sales affiliates in Hong Kong and the Unites States. For a recent month, the following payments matrix of interaffiliate cash flows, stated in Singapore dollars, was forecasted. ______________