1 / 10

Chapter 17 Managing Multinational Cash Flows

Chapter 17 Managing Multinational Cash Flows. Order Order Sale Cash Placed Received Received Accounts Collection

inga-kirby
Download Presentation

Chapter 17 Managing Multinational Cash Flows

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 17Managing Multinational Cash Flows • Order Order Sale Cash • Placed Received Received • Accounts Collection • < Inventory > < Receivable > < Float > • Accounts Disbursement Time ==> • < Payable > < Float > • Invoice Payment Cash • Received Sent Paid

  2. Learning Objectives • Have an appreciation of the development of the current exchange rate system • Understand the basic driving forces causing exchange rates to fluctuate • Gain a basic understanding of the various means by which firms create internal structures to manage exchange rate fluctuations • Have an appreciation for the differences between the US and foreign banking systems

  3. Exchange Rates • Fixed versus floating • Spot rates • Forward rates • Futures rates

  4. Foreign Exchange Quotes • Spot and forward rate quotesUS $ equivBritish (pound) 1.4731 30-Day Forward 1.4740 90-Day Forward 1.4752 180-Day Forward 1.4767Japan (Yen) .008920 30-Day Forward .008963 90-Day Forward .009050 180-Day Forward .009178Switzerland (Franc) .5920 30-Day Forward .5937 60-Day Forward .5967 180-Day Forward .6008

  5. Factors Affecting Exchange Rates • Relative level of interest rates in one country compared to another • Relative rate of inflation in one country compared to another • Government’s central bank reaction to changes in exchange rates caused by economic circumstances • Economic and political factors

  6. Foreign Exchange Exposure • Economic exposure • the possibility that the long-term net present value of a firm’s expected cash flows will change due to unexpected changes in exchange rates • Transaction exposure • the gains or losses associated with the settlement of business transactions denominated in different currencies • Translation exposure • results when the balance sheet and income statement of a foreign subsidiary are translated into the parent company’s domestic currency for consolidated financial reporting purposes

  7. Managing Foreign Exchange Exposure • Avoidance • Leading and Lagging • Netting • Re-invoicing • Hedging

  8. A Typical Multilateral Netting System Subsidiary A Net amount owed Subsidiary A Netting Agent Net amount Subsidiary B Subsidiary C Subsidiary B Subsidiary C Payment Flows Without Netting Net Payment Flows With Netting

  9. Features of Non-US Banking Systems • Check clearing • Interest on demand deposits • Governmental policies and restrictions • Cash management services

  10. Summary • The chapter began with a brief history of exchange rate system. • Different forms of currency quotations were described including: spot, forward, and futures. • Three types of foreign exchange exposure were introduced including: economic, transaction, and translation exposure. • The chapter discussed a variety of techniques for managing foreign currency exposure. • Complicating factors of managing international cash flows including: different regulations, value dating, and fluctuating currency values.

More Related