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Part IV The Multinational Corporation’s Financial Decisions. Chapter 12 Multinational Treasury Management Chapter 13 The Rationale for Hedging Currency Risks Chapter 14 Transaction Exposure to Currency Risk Chapter 15 Operating Exposure to Currency Risk
Chapter 12 Multinational Treasury Management
Chapter 13 The Rationale for Hedging Currency Risks
Chapter 14 Transaction Exposure to Currency Risk
Chapter 15 Operating Exposure to Currency Risk
Chapter 16 Translation Exposure to Currency Risk
Chapter 17 Multinational Capital Structure
and Cost of Capital
12.1 Determining the Firm’s Financial Goals and Strategies
12.2 Managing the Corporation’s International Trade
12.3 Financing the Corporation’s International Trade
12.4 Managing the Corporation’s Cash Flows
12.5 Risk Management in the Multinational Corporation
Determine the firm’s overall financial goals
Manage the risks of domestic and international transactions
Arrange financing for domestic and international trade
Consolidate and manage the financial flows of the firm
Identify, measure, and manage the firm’s risk exposures
Identify the firm’s core competencies and potential growth opportunities
Evaluate the business environment within which the firm operates
Formulate a comprehensive strategic plan for turning the firm’s core competencies into sustainable competitive advantages
Develop robust processes for implementing the strategic business plan
If something can go wrong, it will.
The problems of international trade include:
Exporters must assure themselves of timely payment
Importers must assure themselves of timely delivery of quality goods
Geographic and cultural distances involved in international trade are greater than in domestic trade
Trade disputes span several legal jurisdictions
Cover your risks with trade documentation
Certificate of origin
Shipper’s export declaration
Bill of lading
Use a commercial freight forwarder (or freight shipper) to coordinate the logistics of trade
Open account: Seller delivers goods and bills buyer under agreed-upon payment terms.
Cash in advance: Buyer pays for goods prior to shipment.
Documentary collections: Seller draws a draft (trade bill or bill of exchange) payable to itself on the buyer.
Sight drafts: payable on demand
Time drafts: payable at a specified future date
Trade acceptances: drawn on and accepted by buyer
Banker’s acceptances: accepted by a commercial bank
Documentary credits: Letter of credit issued by buyer’s bank guarantees payment upon receipt of trade documents.
Open account: Accounts receivable can be discounted or factored (sold); long-term receivables can be sold to a forfaiter.
Cash in advance: Buyer provides financing.
Documentary collections: Bothtrade acceptances and banker’s acceptances can be discounted
Documentary credits: In some countries, letters of credit can be discounted or used as collateral for new borrowings. Other countries do not follow this practice.
Forecasting funds needs
Managing relations between operating divisions and external partners
Determination of hurdle rates on new investments
Anticipating and responding to changes in exchange rates
identify the distribution of future exchange rates
estimate the sensitivity of revenues and expenses
determine the desirability of hedging
evaluate hedging alternatives
monitor the position and reevaluate
Risk management should complement the overall business plan