What distinguishes international cash management from purely domestic cash management? In particular, what constraints arise in the international environment?

Question

What will be an ideal response?

Answer 1

The goals of an international money manager of a multinational corporation are (1) to establish control over the cash resources of the organization, (2) to invest excess short-term funds in an optimal way, and (3) to obtain short-term financing at the lowest cost. Establishing control over the cash resources of an organization necessitates creating a reporting system that provides timely and accurate information. When the information is available, the international cash manager can try to improve upon the cash disbursements to and collections from its foreign affiliates. By synchronizing the flows of funds, the international cash manager can lower the cost of moving funds among them. These goals are no different than those of a purely domestic cash manager who transfers money from one account to another (or from one subsidiary to another) so that the firm has an optimal amount of working capital. However, there are constraints on international cash management that domestic managers do not face. These constraints include government restrictions on the transfers of funds, taxes that depend on the type of fund transfer, transaction costs in the foreign exchange market, and problems maintaining the liquidity of all foreign affiliates.