WELCOME


MIDHUN JOHNY GEORGE
II PGM.COM
PG. DEPARTMENT OF COMMERCE
ST. THOMAS COLLEGE, PALAI
 INTERNATIONAL CASH
MANAGEMENT
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 Narrow sense: currency and cash equivalents like cheques,
drafts,…
 Broad sense: includes near-cash assets, such as marketable
securities and time deposits in banks.
 They can be readily sold and converted into cash

 Can serve as a reserve pool of liquidity

 Also provide short term investment outlet for excess cash.

 Cash management is concerned with the managing of:
• cash flows into and out of the firm
• cash flows within the firm
• cash balances held by the firm at a point of time by financing
deficit or investing surplus cash.
Four components of cash management are:
 cash planning
 managing the cash flows
 optimum cash level
 investing surplus cash
MOTIVES OF HOLDING CASH

1. TRANSACTION MOTIVE
to undertake normal business transactions.ie, to
purchase raw material and to pay for operating expenses.

2. PRECAUTIONARY MOTIVE
cash reserves are being held with the motive of
managing unexpected risk and contingencies like flood,
strikes, unexpected slow down in collection of accounts
receivables, increase in cost of raw materials,…
 3. SPECULATIVE MOTIVE

cash helps the firm to tap the unexpected

profitable business opportunities arising in the business
environment like purchase of raw materials at a reduced price
on payment of immediate cash, delay purchase of raw
materials on the anticipation of decline in prices,…

4. COMPENSATING MOTIVE

compensate banks for providing certain services

and loans.
INTERNATIONAL CASH MANAGEMENT
 Cross border movement of funds, from and to other
companies as well as within the companies.
 It is wider in scope and is more complicated because it has to
consider the principles and practices of other countries.

OBJECTIVES
1. To manage and control the cash resources of the company as
quickly and efficiently .(meeting payment schedule)
2. To achieve optimum conservation of cash
 Basic Principles of International Cash Management
1. There is a cash management centre that receives and
distributes timely information relating to cash movements on a
number of bank accounts strategically placed to serve the
needs of the company’s operating divisions.
2. Short payment channels involving a minimum number of
banks, allowing for maximum control.
3. Modern communication systems are used
4. Efficient banks with high standard of customer service are
employed.
5. There is a minimum impact on the internal corporate
organisation, decision making patterns and accounting system.
Centralisation of Cash Management System

It refers to centralisation of information, reports

and decision-making process as to cash mobilisation, movement
and investment of cash.
BENEFITS
• maintaining minimum cash balance during the year.
• helpful to generate maximum possible returns by investing all
cash resources.
• to manage the liquidity requirements of the centre.
• helpful in utilising the various hedging strategies to minimise
the foreign exchange exposure.
Techniques to Optimise Cash Flow
Accelerating collection and decelerating disbursements is a
key element of international cash management.

1. Accelerating cash inflows and delaying cash outflows

2. Managing blocked funds
3. Leading and Lagging strategy
4. Using Netting to reduce overall transaction costs
5. Minimizing the tax on cash flow through international
transfer pricing.
1. Accelerating cash inflows and Delaying cash inflows
 Early recovery of cash assures that cash is available with the
firm for making payments or investments.
Lock boxes, preauthorized payments ,…
Same- day- value facilities -- the amount deposited in any
branch of the bank in any country is credited to the firm’s
account on the same day.

 Delaying cash outflow means postponing the cash

disbursements without affecting the goodwill of the firm.
2. Managing blocked funds
In emergency situations, the host country may block funds
that the subsidiary attempts to repatriate to the parent
company.
The host govt. may make it compulsory that profits generated
by the subsidiary be reinvested locally for a specific time period
before they can be remitted, these funds are known as blocked
funds.
Parent co. may instruct the subsidiary to obtain financing
from a local banker rather from the parent. And they investigate
the potentials of future fund blockage.
 various methods of moving the blocked funds are transfer
pricing strategies, parallel and back to back loan, leading and
lagging, direct negotiates,…
3. Leading and Lagging strategy
Leading means shortening of credit terms in number of days.
Lagging means extending or enlarging of the days of credit.
Shortening of the period of credit causes greater flow of cash
from the purchaser(importer) to the seller(exporter)
MNCs can accelerate (lead) or delay (lag) the timing of foreign
currency payments by modifying the credit terms.

Companies generally accelerate the payments of hard currency

payables and delay the payments of soft currency payables so as
to reduce foreign exchange exposure.
4. Using Netting to reduce overall transaction costs
• Netting is a technique of optimising cash flow movements with
joint efforts of subsidiaries.
• It is , in fact, the elimination of counter payments.
• Here only net amount is paid.
• Helps in reduction of administration and transaction costs that
result from currency conversion.
• Two types:
a) Bilateral netting system
b) Multinational netting system
 a. Bilateral Netting System
• It involves transactions between the parent and a subsidiary or
between two subsidiaries.
b. Multinational Netting System
• It involves a more complex interchange among the parent and its
several affiliates .
• Results in a considerable saving in exchange and transfer costs.
• Here each affiliates nets all its intra-affiliate receipts against all
its disbursements.
• then transfers or receives the balance (net receiver or payer)
• It needs the service of a centralised communication system and
discipline on the part of the subsidiaries involved.
5. Minimizing the Tax on cash flow through International
Transfer pricing
• In a MNC having many subsidiaries, goods and services are
frequently transferred from one subsidiary to another.
• The profits of the various subsidiaries are determined by the
price that will be charged by the transferring affiliate to
receiving affiliate.
• Higher the transfer price, the larger will be the gross profit of
the transferring affiliate and smaller to the receiving affiliate.
• This strategy highlights how the high tax subsidiary is
subsidizing other subsidiaries.
• This reduces the subsidiary’s profits but increases the overall
cash flow for the MNC. (host govt. may prevent it)
THANK YOU
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