Multinational Management of Working Capital
Multinational Management of Working Capital
MNCs tie up funds when investing in their working capital, which includes short term assets such as inventory, accounts receivable, and cash. They attempt working capital management by maintaining sufficient short-term assets to support their operations.
Yet, they do not want to invest excessively in short-term assets because these funds might be put to better use.
The management of working capital is more complex for MNCs that have foreign subsidiaries because each subsidiary must have adequate working capital to support its operations. If a subsidiary experiences a deficiency in inventory, its production may be delayed. If it is short of cash, it may be unable to purchase supplies or materials. If the parent of an MNC is aware of the working capital situation at every subsidiary, it may be able to transfer working capital from one subsidiary to another in order to solve temporary deficiencies at any subsidiary.
Subsidiary Expenses:-
Begin with outflow payments by the subsidiary to purchase raw materials or supplies.
The subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic because of exchange rate fluctuations. In addition, there is a possibility that payments will be substantially higher due to appreciation of the invoice currency. Consequently, the firm may wish to maintain a large inventory of supplies and raw materials so that it can draw from its inventory and cut down on purchases if the invoice currency appreciates. Still another possibility is that imported goods from another country could be restricted by the
21: International Cash Management
The term cash management can be broadly defined to mean optimization of cash flows and investment of excess cash. From an international perspective, cash management is very complex because laws pertaining to cross-border cash transfers differ among countries. In addition, exchange
MNCs tie up funds when investing in their working capital, which includes short term assets such as inventory, accounts receivable, and cash. They attempt working capital management by maintaining sufficient short-term assets to support their operations.
Yet, they do not want to invest excessively in short-term assets because these funds might be put to better use.
The management of working capital is more complex for MNCs that have foreign subsidiaries because each subsidiary must have adequate working capital to support its operations. If a subsidiary experiences a deficiency in inventory, its production may be delayed. If it is short of cash, it may be unable to purchase supplies or materials. If the parent of an MNC is aware of the working capital situation at every subsidiary, it may be able to transfer working capital from one subsidiary to another in order to solve temporary deficiencies at any subsidiary.
Subsidiary Expenses:-
Begin with outflow payments by the subsidiary to purchase raw materials or supplies.
The subsidiary will normally have a more difficult time forecasting future outflow payments if its purchases are international rather than domestic because of exchange rate fluctuations. In addition, there is a possibility that payments will be substantially higher due to appreciation of the invoice currency. Consequently, the firm may wish to maintain a large inventory of supplies and raw materials so that it can draw from its inventory and cut down on purchases if the invoice currency appreciates. Still another possibility is that imported goods from another country could be restricted by the
21: International Cash Management
The term cash management can be broadly defined to mean optimization of cash flows and investment of excess cash. From an international perspective, cash management is very complex because laws pertaining to cross-border cash transfers differ among countries. In addition, exchange