This document discusses international cash management. It covers topics like foreign exchange risk, currency risks from foreign direct investment, and international financial reporting standards. The benefits of good cash management are controlling financial risk, grabbing profit opportunities, and strengthening the balance sheet. Effective cash management involves planning, monitoring, and managing liquid resources, receivables, payments, investments, and foreign exchange. The objectives of international cash management are to maximize returns from short-term currency allocations and borrow at minimum cost while maintaining liquidity and minimizing risks.

1. Unit 5
International Receivables and
Cash Management

2. Contents of the Chapter
International Receivables and Cash Management,
Foreign exchange risk,
The essence and types of currency risks,
Risks of making decisions about foreign direct
investment, Political risk,
International Financial Reporting Standards (I.F.R.S) and
Indian Accounting Standards (I.A.S) on foreign
transactions,
Foreign Exchange Trade Settlement in India, SWIFT,
CHIPS, CHAPS

3. International Cash Management
Corporate Definition of Cash Management: The
effective planning, monitoring and management of liquid /
near liquid resources including:
 Day-to-day cash control
 Money at the bank
 Receipts
 Payments
 Short Term investments and borrowings
 FX

4. International Cash Management
 Bank Definition of Cash Management: The effective planning,
monitoring and management of liquid / near liquid resources
including:
 Provision of bank accounts
 Deposit / withdrawal facilities
 Provision of information regarding bank accounts and positions
 Money transfers and collection services
 Investment facilities
 Financing facilities
 Pooling and netting

5. International Cash Management
Benefits of Good Cash Management:
 Company can control of financial risk easily.
 If sufficient cash is available company can grab the
opportunity for profit.
 It helps in strengthening the balance sheet.
 It helps to increase the confidence of customers,
suppliers, and shareholders.

6. International Cash Management
Nature of Cash Flows:
Different industries have different cash flow characteristics.
They are –
 Timing and mismatches
 Fluctuations
 Predictability
 Currency
 Location

7. International Cash Management
Meaning of Liquidity:
It means having sufficient funds available to meet all
foreseen and unforeseen obligations. Liquidity has costs:
 Cash is unproductive
 Spread between borrowing and deposit rates and
between long and short term rates

8. International Cash Management
Need of Liquidity for:
 Day to Day Transactions
 Precautionary Balances
 Compensating Balances
 Obtaining Discounts
 Acid Tests
 Favourable Opportunities
 Overall, Avoiding Bankruptcy

9. International Cash Management
Sources of Liquidity:
 Bonds
 Bank Loans – Short Term and Long Term
 Debtors / Receivables
 Stock / Inventory
 Cash
 Short Term Investments
 Treasury Bills etc.

10. International Cash Management
Cash Conversion:
 Need to consider control in all areas of working capital to
maximise return, reduce cost.
 Some areas are not controlled by the Finance Function –
Stock/inventory.
 Some areas have shared control – payables and
receivables.
 Some areas are controlled by the Finance Function –
short term borrowing and investment.

11. International Cash Management
 Objectives of Cash Management
 Inflows and outflows of funds are generally uncertain, especially for large multinational
corporations with sales and production activities throughout the world.
 It is therefore important for companies to maintain liquidity. The amount of liquidity and the
form it should take constitute the topic of working-cash (or working-capital) management.
 Liquidity can take a number of forms, including coin and currency, bank deposits, overdraft
facilities, and short-term readily marketable securities. These involve different degrees of
opportunity cost in terms of forgone earnings available on less liquid investments.
 However, there are such highly liquid short-term securities in sophisticated money markets
that virtually no funds have to remain completely idle. In some locations there are
investments with maturities that extend no further than ‘‘overnight,’’ and there are overdraft
facilities which allow firms to hold minimal cash balances. This makes part of the cash
management problem similar to the problem of where to borrow and invest.

12. International Cash Management
 The objectives of effective working-capital management in an
international environment are
1) to allocate short-term investments and cash balance holdings
between currencies and countries to maximize overall corporate
returns;
2) to borrow in different money markets to achieve the minimum cost.
These objectives are to be pursued under the conditions of
maintaining required liquidity and minimizing any risks that might be
incurred.