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Objectives
This chapter emphasizes the decisions involved in management of cash by an MNC. The additional opportunities and risks of cash management for an MNC versus a domestic firm should be stressed. The specific objectives are:
Objectives
to explain the difference between a subsidiary perspective and a parent perspective in analyzing cash flows; to explain the various techniques used to optimize cash flows; to explain common complications in optimizing cash flows; and to explain the potential benefits and risks of foreign investments.
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Short-term Securities
Subsidiary 1
Funds for Supplies Funds for Supplies
of Earnings
Long-term Projects
parent
Sources of Debt
Subsidiary 2
Stockholders
Cash Dividends 10
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by Subsidiary to Subsidiary Located in: Located in: Canada France Japan Switzerland Canada 40 90 20 France 60 30 60 Japan 100 30 20 Switzerland 10 50 10 U.S. 10 60 20 20
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to be made owed to Subsidiary by Subsidiary Located in: Located in: Canada France Japan Switzerland U.S. Canada 0 0 10 30 France 20 0 10 0 Japan 10 0 10 10 Switzerland 0 0 0 30 U.S. 0 10 0 0
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Government Restrictions
Some governments may prohibit the use of a netting system, or periodically prevent cash from leaving the country.
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If the foreign currency depreciates over the investment period, the effective yield will be less than the quoted rate. *(Example: P471-473)
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Yes Yes
Yes Yes Yes No No
Covered Uncovered
Similar Similar
Similar on average Lower Higher Higher Lower
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