FUNCTION B: CASH MANAGEMENT

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The previous section dealt with various tools designed to minimize the impact of external environmental changes on a firm's financial assets. Usually a firm does not hope to realize any financial benefits by using these tools; the main objective is to avoid losses. Most of the time there is at least one external party involved, such as a bank or another firm.

This section explores the variety of internal tools available to a firm. Although the main objective in using these tools is to minimize exposure risks, there is plenty of opportunity to realize financial benefits by minimizing taxes and optimizing cash generation and cash uses among a firm's subsidiaries.

There are many ways an MNC can maneuver liquid assets to accomplish cash management objectives without violating tax laws and/or foreign exchange regulations. The cash management goals of an MNC are

To secure liquidity

To minimize financial costs

To minimize taxes

These overall objectives translate into various specific tasks that must be performed by the financial manager:

Although most large MNCs have their own financial institutions, which for all practical purposes perform the financial transactions formally handled by a bank, for purposes of illustration a bank will be considered to be the vehicle through which all financial transactions are handled. The bank acts as a clearinghouse for all transactions among a firm's subsidiaries and between the parent company and each of the subsidiaries. The bank sets a minimum balance requirement for the year, as well as a minimum bank deposit for each subsidiary. The total of all subsidiaries' deposits can be used to satisfy the bank's minimum balance requirement. Once these requirements have been met, each subsidiary can use any of the four methods listed above to maneuver liquid assets.