INTERNATIONAL CASH MANAGEMENT

The term cash management includes:

Determination of optimum amount of cash required in the business.

Keep the cash balance at optimum level and investment of surplus in

profitable manner.
Prompt collection of cash from receivables(i.e. from debtors and bills
receivables) and efficient disbursement of cash.
Cash is one of the current assets of business. It is needed at all times to
keep the business going. A business concern should always keep
sufficient cash for meetings its obligations. Any shortage of cash will
hamper the operations of a concern and any excess of it unproductive.

MEANING OF CASH
For the purpose of cash management, the term cash
not only includes coins, currency notes, cheques,
bank drafts, demand deposits with banks
also the near-assets like marketable securities and
time deposits with banks because they can be
readily converted into cash.

MOTIVES OF HOLDING CASH

Transaction motive: A number of transactions take place in every business.
Some of the transactions result in cash outflows such as
payments for purchases, wages, operating expenses
,financial charges like interest, taxes , dividends etc.
Similarly , some transaction result in cash inflows such
as receipts from sales, receipts from sales, receipts from
investments, other incomes etc.
To meet the shortage of cash in situation when cash
outflows exceed cash inflows, the business must have an
adequate cash balance.

MOTIVES OF HOLDING CASH

Precautionary Motive:-

In every business, some cash balance is kept as a

precautionary measure to meet any unexpected
contingency. These contingency may include
following:
Floods ,strikes and failures of important customers.
Unexpected slow down in collection from debtors.
Cancellation of orders by customers.
Sharp increase in cost raw-materials.
Increase in operating costs etc.

MOTIVES OF HOLDING CASH

Speculative Motive:-

In business, some cash is kept in reserve to take

advantage of profitable opportunities which may
arise from time to time. These opportunities are:
Opportunity to purchase raw material at low prices
on payment of immediate cash.
Opportunity to purchase securities when their prices
are low.
Opportunity to purchase other assets for the
business when their prices are low.

MOTIVES OF HOLDING CASH

Compensating motive:-

Banks provide a number of services to the business

such as clearance of cheques, supply of credit
information about other customers, transfer of funds
and soon .
Bank charge commission or fee but they require
indirect compensation.
For this purpose, banks do not require indirect
compensation.
For this purpose, banks require the clients to maintain
a minimum balance in their accounts in the bank.

Factors determining cash needs and level

of cash.
Timing of cash flows:-the need for maintaining cash balances arises because cash inflows
and cash outflows take place at different place at different times. If cash inflows perfectly
match cash outflows, i.e.if they take place at same time, there would be no need for keeping
cash balances
Cash shortage costs:-cash budgets would reveal the quantum as well as periods of cash
shortages. Every shortages of cash involves a cost depending upon the quantum and
duration of shortfall. Costs incurred as a result of shortfall of cash are called cash shortage
costs.
Cash excess costs:-if a firm keeps a cash balance in excess of its requirements, it will miss
opportunities to invest it elsewhere. As a result it will lose interest which it would otherwise
have earned by investing excess cash elsewhere. This factor should also be considered in
determining the level of cash and therefore the level of cash should not be determined in
excess.
Cash management costs:-cash management also involves some costs such as salary,
clerical expenses etc.of cash management staff. Cash need should be determined after
considering this factor also.
Uncertainty:- cash flows can never be predicted with complete accuracy and there is
always some uncertainty in their forecast such as unexpected delay in collection from
debtors. Firms must always keep some additional cash to meet these uncertainties'.

OBJECTIVES OF CASH MANAGEMENT.

To maintain optimum cash balance:- The maintain
objective of cash management is to determine the
optimum cash balance required in the business to
determine the optimum cash balances. Hence, an
optimum level of cash should be determined by
considering all the requirements of cash in the business.
To keep the optimum cash balance requirement
at minimum level:- the second main objective of cash
managemnt is to minimize cash balance requirement
because cash is non-earning asset.This objective is
achieved by managing the cash flows in such a manner
that cash is collected promptly and liabilities are paid in
time.

Advantages of adequate cash

Prevents insolvency of the business arising due to non-payment of
its obligations on time.
Helps in availing the advantage of favourable business
opportunities.
Business can meet its contingencies.
Adequate cash balance helps in availing of the cash discount by
making the payment within due date.
Help in fostering good relations with the creditors by making
prompt payment to them.
By maintaining adequate bank balance, the relationship with the
bank is not strained.

Centralized Cash Management

Centralized cash management:-In centralized system of cash
management collection of cash and payment of cash is made
to and by Head office only instead of different-different
branches of the company. In this system, to have efficient
cash management there is two steps:Prompt Payment by Customer:- one way to ensure prompt
payment by customers is prompt billing. What the customer
has to pay, the period of payment etc. should be notified
Accurately and in advance.
The use of mechanical devices for billing along with the
enclosure of a self-addressed return envelope will speed up
payments by customers. Another and more important
technique to encourage prompt payment by customers is the
practice of offering trade discounts.

EARLY CONVERSION OF PAYMENT INTO

CASH:Once the customer makes the payment by writing
a cheque in favour of the firm, the collection can
be expedited by prompt encashment of the
cheque. It will be recalled that there is lag is
between the time a cheque is prepared and
mailed by the customer and the time the funds,
are included in the cash reservoir of the firm.

ADVANTAGES OF CENTRALIZED CASH

MANAGEMADVAENT.
Helps in maintaining minimum cash balance during the year.
Helps the companies to generate maximum possible returns
by investing all cash resources optimally.

Helping the companies to take complete advantage of

multinational netting, so as to minimize transaction cost and
currency exposure.
Optimally, utilizes the various ledging strategies so as to
minimize the mncs foreign exchange exposure.
Achieve maximum utilization of the transfer pricing
mechanism so as to enhance the profitability and growth of
the firm.

DISADVANTAGE OF CENTRALIZED CASH

MANAGEMENT.
Local managers may loose motivation to control cash flows
adequately. When the cash management and finance function are in
the hand of headquarter the co-ordinatio between the financial
disciplines and the local knowledge may more easily is frustrated.
Morever, a centralized cash system requires a highly formalized
cash balance control system, thus rising regulative, administrative,
and information costs. Finally, internalizing and recognizing the
cash balance may disturb relationship of subsidiaries with local
banks.

The disadvantage of centralized european cash management,

however decline. Morever,netting and pooling of cash positions
gain attractiveness and trend towards centralized treasuries is
already apparent. Infact, even non european mncs have recognized
their european treasuries operations along pan european lines.