scope of this chapter on international treasury management, the complexity of estab-
lishing a truly cost-effective cross-border cash concentration system would require a
combination of tax management, cash management, and foreign exchange manage-
ment. At the heart of such a system would be the minimization of cross-border cash
payments, by currency, achieved through either bilateral or multilateral netting of ob-
ligations. Aside from the complexity of terminology involved, the complexity of
gaining real-time access to the information necessary for the attainment of true effi-
ciencies is frequently prohibitive.
The reporting and monitoring system for global cash management should be de-
signed to ensure that the firm, on a global basis, can hold overall cash balances to a
minimum, avoid political and foreign exchange risk, minimize net interest expense,
and minimize costs associated with transactions, bank float, and the general move-
ment of funds. Transaction costs associated with global cash management are gener-
ally minimized by minimizing the number of transactions. The reports should include
the following from the overseas operations: daily bank account records, activity
schedules and fees, disbursements and collections, deposits and payments, negotiated
bank arrangements (value dates), intragroup receivables and payables, and a cash
budget for the appropriate time period ahead (including anticipated use of overdraft
facilities). From the overseas banks, ledger balances and value balances should be
available.
(d) Barriers to Effective International Cash Management. What are the factors that
make a comprehensive and effective international cash management system difficult
to implement and manage? A partial list would include the following:
- Differences and discrepancies in national bank rules, regulations, and practices
- National restrictions on netting, leads and lags, and hedging practices
- Limited local banking services
- Few standards for pricing of banking services
- Chronic informational failures such as confirmation delays
- National differences in corporate payment practices and customs
- Local credit restrictions, rationing of access to local borrowing or investing
alternatives
This formidable list is the playing field of the international cash manager. Al-
though new and sophisticated electronic services are introduced daily by banks, the
firm with multinational operations in far-flung parts of the globe faces a difficult and
often time-consuming task of efficiently managing the firm’s source of value—cash
flow.
5.5 FOREIGN EXCHANGE MANAGEMENT. Foreign exchange management and in-
ternational cash management share the same basic goals, centralizationandconcen-
tration. The multinational firm’s foreign affiliates and subsidiaries (similar to those
shown in Exhibit 5.4) possess their own individual currencies of cash flow (func-
tional currency). Many of these affiliates are often not equipped, both in staffing and
expertise, to effectively manage the currency transactions and risks which arise. The
consensus in industry today is that the international treasury of the parent company,
5.5 FOREIGN EXCHANGE MANAGEMENT 5 • 15