Current asset management Flashcards
What are some ways to transfer money?
a) Bankwire
b) CHIPS
c) FedWire
d) SWIFT
What are the advantages of centralized cash management?
a) Pools of excess liquidity are eliminated
b) Financing costs can be reduced
c) Information at the level of the operating unit is better utilized
What is the rationale of using multilateral netting?
Since a large percentage of multinational fund transfers are subsidiary-to-subsidiary
reduce foreign exchange transaction costs
What is cash pooling?
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What are mobilization centers?
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What would add value to centralized cash system?
a) tax differentials across countries
b) violations of interest rate parity
c) differences between borrowing and lending rates
What are the fees associated with issuing commercial paper?
a) backup lines of credit
b) fees to commercial banks
c) rating service fee
What are the major forms of bank financing?
a) overdrafts (An overdraft is simply a line of credit against which drafts (checks) can be drawn (written) up to a specified maximum amount.)
b) discounting
c) term loans
d) Line of credit (This informal agreement permits the company to borrow up to a stated maximum amount from the bank. The firm can draw down its line of credit when it requires funds and pay back the loan balance when it has excess cash.)
What is accelerated clearings? reduce float?
What is the relationship between multilateral netting and bilateral netting?
What are the key learning points for developing short-term finance strategies?
1) identifying the key factors,
2) formulating and evaluating objectives,
3) describing available short-term borrowing options, and
4) developing a methodology for calculating and comparing the effective dollar costs of these alternatives
What are the six factors that need to be considered?
1) Is the interest differential compensated by expected exchange rate changes? International Fisher Effect
2) If the interest differential compensated by forward contracts? Interest rate parity
3) Exchange risks
4) Political risks
5) Tax differentials
6) Risk aversion
What are some options of financing short-term loan?
1) intercompany loan (loan from parent or affiliates)
2) Local currency loans (bank loans)
3) Commercial paper
What is the formula for effective interest rate?
Annual interest paid / funds received
Funds received (how much money you actually get for use)
What are the different scenarios for calculating effective interest rate?
1) Original - interest paid at maturity; effective interest rate = quote interest rate
2) Discount basis (Timing of interest) - pay interest in advance; funds received = face value - interest
3) Compensating balance - freeze up part of the account
