Exam 21: International Cash Management

If interest rate parity holds and the forward rate is expected to be an unbiased forecast of the future spot rate, then an uncovered investment in a foreign deposit will on average earn a similar effective yield as an investment in a domestic deposit.

Which of the following is not a technique to optimize cash flows?​

Lockboxes are post office box numbers assigned to employees for picking up their paychecks.

Assume that in recent months, most currencies of industrialized countries depreciated substantially against the dollar. Assume that their interest rates were similar to the U.S. interest rate. If non-U.S. firms invested in U.S. Treasury securities during this period, their effective yield would have been:​

MNCs typically consider all but the following ____ when investing cash over a short-term period​

Assume that Subsidiaries X and Y of the same MNC oFten trade with each other. Assume that Subsidiary X has excess cash while Subsidiary Y is short on cash. How can Subsidiary X help out Subsidiary Y?​

Since each subsidiary may be more concerned with its own operations than with the overall operations of the MNC, a centralized management group may need to monitor the parent-subsidiary and intersubsidiary cash flows.

Exhibit 21-1 To benefit from the low correlation between the Trinidad dollar and the Japanese yen (¥), Sciorra Corporation decides to invest 50 percent of total funds invested in Trinidad dollars and the remainder in yen. The domestic yield on a one-year deposit is 8 percent. The Trinidad one-year interest rate is 10 percent, and the Japanese one-year interest rate is 7 percent. Sciorra has determined the following possible percentage changes in the two individual currencies as follows: ​ -Refer to Exhibit 21-1 above. What is the expected effective yield of the portfolio Sciorra is contemplating (assume the two currencies move independently from one another)?​

Since exchange rate forecasts are not always accurate, a probability distribution of possible exchange rates may be preferable to a single point estimate.

To ____, MNCs can use preauthorized payments.