Exam 19: Multinational Cash Management

For a recent month,the following payments matrix of interaffiliate cash flows was forecasted: \ Disbursement From: Receipts by: France Britain U.S. France - 500 800 Britain £480 - £300 U.S. \ 600 \ 960 - The spot exchange rates are $1.20 = €1.00 and $2.00 = £1.00; affiliates get paid in home currency.Use multilateral netting to find the net payments to an from all parties. Which of the following is an accurate chart of their current situation?

Find the net cash flow in (out of)the German affiliate.

Which term correctly describes the following situation? When a country imposes exchange restrictions on its own currency,limiting conversion to other currencies,a MNC's frustrated remittance of profits from a subsidiary would be

A multilateral netting system is beneficial in reducing the number of and the expense associated with interaffiliate foreign exchange transactions.

MNCs can reduce their exchange rate expense

Simplify the following set of intra company cash flows for this Swiss Firm. Consider the following exchange rates.

With a CENTRALIZED CASH DEPOSITORY

Which will reduce the number of foreign exchange transaction the most for a MNC?

Bilateral Netting of Internal and External Net Cash Flows Your firm's interaffiliate cash receipts and disbursements matrix is shown below ($000): Disbursements Receipts U.S. Canada Germany U.K. U.S. - 5 5 15 Canada 5 - 10 15 Germany 5 10 - 15 U.K. 15 15 15 - -Fill out the following figure with the initial situation shown in the table.

The lower the transfer price

Find the net cash flow for the entire firm.

Bilateral Netting of Internal and External Net Cash Flows Your firm's interaffiliate cash receipts and disbursements matrix is shown below ($000): Disbursements Receipts U.S. Canada Germany U.K. U.S. - 5 5 15 Canada 5 - 10 15 Germany 5 10 - 15 U.K. 15 15 15 - -Using your results to the last question,use bilateral netting to simplify.

Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use BILATERAL netting to reduce the number of foreign exchange transactions by half.

A centralized cash pool assists in reducing the problem of mislocated funds and in funds mobilization.

Assuming that the interaffiliate cash flows are uncorrelated with one another,calculate the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members: Affiliate Expected Transactions Standard Deviation U.S. \ 100,000 \ 40,000 Canada \ 150,000 \ 60,000 Mexico \ 175,000 \ 30,000 Chile \ 200,000 \ 70,000

If foreign exchange transactions cost ABC 0.45 percent,what savings results from netting?

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. Trading Company Payments Matrix (S \0 00) Disbursements by: Singapore Hong Kong U.S. Receipts by: Singapore -- 80 110 Hong Kong 16 -- 44 U.S. 22 50 - Which of the following is an accurate chart of their current situation?

Some countries allow interaffiliate transactions to be settled only on a gross basis.That is,

The cash manager of a domestic firm should source funds internationally to obtain the lowest borrowing cost and to place excess funds wherever the greatest return can be earned regardless of currency.

A centralized cash management system with a cash pool can reduce the investment the MNC has in precautionary cash balances,saving the firm money. Multiple Choice Questions