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MULTINATIONAL WORKING CAPITAL MANAGEMENT

The goals of working capital management in an MNCare the same as those of a domestic firm, that  is to manage the firm's current assets  and liabilities in such a way that a satisfactory level of working capital is maintained. The discussion of the working capital management in  section is made with reference to (j) cash management, (ii) credit management and (iii) inventory management.

Cash management

Cash management is one of the key areas of working capital management. Its basic objective is to  meet the payment schedule, that is, to  ave sufficient cash to meet the cash disbursement needs of  the firm. In the normal course of business, firms are to make ash payments on   continuous and regular basis to suppliers of goods, employees, bankers and so on.  The importance of sufficient cash to meet the payment  schedule can.hardly be overemphasized.  The major advantages are: (j) It"helps in fostering good relations with trade creditors and  suppliers of raw materials. (ij) Good relations are maintained with banks, (Hi) It leads to' a strong credit  rating, which. enable~s the firm to  purchase goods on favorable terms and to maintain its line of  credit with banks

and other sources of credit. (iv) Cash discounts can be   valid. . Since large cash balances entail high financial costs, inter Sovereigns Foreignness subsidiaries  (like domestic firms) should   maintain adequate cash balances and not excessive cash balances. Like domestic firms, multinational companies can employ the following key   ash management strategies to minimize the operating cash balance requirement. (i) speedy collection of accounts  receivable (by using.

 ck box system and electronic' funds transfer); (ii) stretching accounts  payable (without damaging its credit standing); 'Om shift cash as  sat as possible from those parts of ..  the business/foreign subsidiaries where it is not needed to those parts/places where it is needed (by   sing the netting system and currency center concept). The first two strategies are self explanatory. The concept of currency center is   illustrated in Example 36.14. A US multinational has its subsidiaries in India, UK and France. The multinational receptionist its inter- I ~  subsidiary cash now using the netting system and currency center located at us headquarters. Each subsidiary Example I reports its   payable to other subsidiaries, on the fit day of each month. to the centre. In their report, these subsidiaries also intimate the funds   available with them and expected requirement of funds for operations by it in that month The currency centre then .issues instructions to   he net-paying subsidiary on the fifth of each month, using  the market exchange rate on that date. Also'.the currency centre requires  subsidiary companies to transfer

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