RECEIVABLES MGT A\C Receivables, Sundry Drs,Trade Drs, Book Debt Component of WC Current Asset Level of Liquidity 1\3

of Total CAs
Substantial Investment Avg. Daily Cr Sale X Collection Period Expressed in terms of Cost of Sales Obj: To Maximize value to the firm

Receivables Mgt:Challenge Design a CREDIT POLICY

Volume of Credit Sale Credit Standards Credit Analysis Credit Terms-Cr period,CD,CD period, Collection Effort Stringent or Lenient \ Liberal policy

Credit Policy 1. Marketing Tool 2. Meet Competition 3. Wean Customers from Competitors 4. Customer Retention 5. Market Share 6. Cr Policy Evaluated for Costs-Returns Costs Admin Costs\Collection Costs Capital Costs Selling Costs Delinquency Costs Bad Debt Cost or Default Costs

Optimum Credit Policy Marginal Cost-Benefit Analysis Incremental Costs & Returns equal to Incremental Marginal Investment IMI= Incremental Profits Incremental Investment Required ROR more than Borrowing Rate High ROR due to High Risk Four Steps for Optimization 1. Estimate Incremental Operating Profits 2. Estimate Incremental Investment 3. Estimate Incremental ROR on Investment 4. Compare Incremental ROR with Required ROR

1. Credit Standards: High, Good, Fair,OK 2. Credit Analysis: Current Ratios, ACP, Quick Ration, D:E Ratio Bank References Numerical Credit Scoring: W1, W2, W3 for Income Level, Years in Business, Debt Portion 3. Credit Terms 4. Collection Program Trained Staff Monitoring receivables Letters, mails, SMS, Telephone Threat of Legal Action

Monitoring of Receivables
1. Days Sales Outstanding 2. Ageing Schedule 3. Collection Matrix

INTERNATIOINAL TRADE Bretton Woods Agreement-IMF Base Currency- US$

Models 1. Adam Smith Model-Cost Advantage 2. Ricardian Model-Technology 3. Heckscher-Ohlin Model-Factors of Production 4. New Trade Theory-competition, Return on Scale 5. Gravity Model-Distance between countries

European Union
1
2 3 4 5 6 7 8 9 10 11 12 13 14

4,567.0

2011 est.

United States
China Germany Japan France United Kingdom South Korea Netherlands Canada Italy Hong Kong Russia Singapore India

3,969.0
3,801.0 2,768.0 1,649.8 1,226.4 1,127.0 1,068.7 1,046.6 962.6 953.0 938.4 900.6 821.0 809.4

2012 est.
2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est. 2012 est

Foreign Exchange Market Facilitates currency exchange Participants or Operators-Central Bank, Commercial Banks, Brokers, MNCs Type of Operators 1. Arbitrageurs-Risk-free, rate fluctuations only 2. Traders- import & export 3. Hedgers-MNCs, Protect value 4. Speculators- Profit motive

Forex Rates 1. Direct quote- per unit of domestic currency 2. Indirect quote- Units of domestic currency per unit of foreign currency 3. Cross-Rate- Two countries trading in third countrys currency 4. Bid-ask spread-buy & sell premium 5. Forward rate- 30, 90, 180 days

Foreign currency Option

Right to buy or sell a currency at an agreed rate on or before an agreed maturity period 1. Call or buy option 2. Put or Sell option Financing Operations 1. Euro Currency-Syndicated, LIBOR+premium 2. Euro Bonds-Bearer Bonds, Samurai, yankee, Bull dog 3. Depository Receipts-ADRs & GDRs

Determinants of Exchange Rates Inflation Rates-Purchasing Power Parity Theory-Goods of equal value in countries are equated through an exchange rate PPPr = spot rate X (1+Rh)/(1+Rf) R-Inflation rate PPPr = spot rate X Ph/Pf P-Price index Interest Rates-Interest Rate Parity TheoryDiscount \premium of a currency to another reflects the interest rate differential between the two countries Fwd Rate= spot rate X (1+Ih) / (1+If)

Balance of Payments

Foreign Exchange reserves (including Gold) Level of Activity & Employment

MNCs Trade Barriers Imperfect labor market Intangible assets Vertical integration Product life cycle Diversification Share-Holder Diversification