Question

Discuss two general functions involved in international cash management. Explain how the MNC’s optimisation of cash flow can distort the profits of a subsidiary.

Answer 1

International cash management can be divided into two functions:

1. Iptimizing cash flow movements

2. Investing excess cash.

Cash inflows can be optimized by techniques such as accelerating cash inlows, minimizing currency conversions, costs, managing blocked funds and inter subsidiary cash transfers.

Investing excess cash involves an assessment of effective yield and a descision to invest funds in short term domestic or foreign securities

In managing blocked funds, the MNC may use transfer pricing in a way that increases the expenses incurred by the susbsidiary. In this way, the profit of the subsidiary will be reduced.