Exam 19: Multinational Cash Management

For a recent month, the following payments matrix of interaffiliate cash flows was forecasted: Use multilateral netting to find the net payment from the British affiliate to the U.S. affiliate. The spot exchange rates are $1.20 = €1.00 and $1.80 = £1.00; affiliates get paid in home currency.

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

According to a recent survey by Ernst and Young, the most important tax issue that multinational enterprises now face is

Why can blocked funds can be detrimental to all concerned?

The U.S. IRS allows transfer prices to be set using comparable uncontrolled price method. This method is difficult to apply in practice because many factors enter into the pricing of goods and services. Examples include

Mislocated funds are defined as:

Using your results to the last question, use bilateral netting to simplify.

The lower the transfer price

Fill out the following figure with the initial situation shown in the table.

With regard to cash management systems in practice, studies suggest that the benefits of a multilateral netting system include

Using your results to the last question, use multilateral netting to simplify.

Under multilateral netting

The formula for the standard deviation of cash held by the centralized depository for N affiliates is

Fill out the following figure with the initial situation shown in the table.

Multinational cash management

Not all countries allow MNCs the freedom to net payments,

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

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

A central cash manager has a global view of the most favorable borrowing rates and most advantageous investment rates.

Benefits of a multilateral netting system include: