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International Monetary Relations - Essay Example

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International Monetary Relations

This will be centralized in one country hence policy setting as well as decision making can be improved on funds management. Execution is however, not personalized. Amongst the problems experienced, is currency risk when the value of exchange rates is not monitored. The treasurer and CFOs of the MNCs need to understand fully how to organize, report and integrate business operations for efficiency in resource use. Globally, it has been seen that idling of cash of up to $80 billion is a loss to the economy. Such a huge cash flow not invested for 3 months is non-beneficial and in turn loses value. Effective global treasury is aimed at managing such funds seldom producing economic benefits. Other aspects to be considered include the reporting systems in use, managing cash flow and working capital, and strengthening governance. The analysis shows that MNCs are making detrimental decisions if errors are made. One example reveals a loss in the value of foreign exchange when a North American company erroneously paid the wrong employee in the wrong country. A reversal of the transaction saw the company lose part of its money. Spreadsheets programs predispose the MNCs to inaccurate reporting. This can cause hedging of funds, to invest or to borrow where conditions do not depict so. The effect is higher if the actions are taken across border and the foreign exchange as well international market investments are at the core for MNCs. The open currency system that is mostly applied worldwide saw the North America Company lose its value for money. Government interventions are needed in order to globalize the treasurer to curb such effects. The foreign exchange can be abolished and investment made by MNCs be it currency forwards or currency futures or currency options will be easily managed through one currency system. Inaccuracy in cash forecasting is stated at 80% by treasurers. This is detriment to the economy since funds are not effectively managed and poor decision in currency derivatives can be made. Managing working capital is a key element in business operations. However, the managers in the MNCs find themselves in a predicament where working capital is held in regions where the MNCs are not established. A look at parity and forecasting for the MNCs would reveal that the interest parity rates as well as the purchasing power rates are not considered in achieving the fundamental goal- cash optimization. The inflation rates rising in some countries are not considered in this case. The purchasing power of products or service so created by the MNCs may be so low leading unprofitable endevours in some developing countries. Inaccuracy in cash flow reporting leads to improper forecasting and poor investment strategies. Financial risk should be critically assessed considering gains and losses that can arise in global business operations. The global treasury can assist in streamlining the decision making process if implemented effectively. MNCs are faced with currency exchange management in different countries. The liquidity of their operations in the near future can be analysed by measuring the currency exposure. The transaction exposure can be obtained by assessing values of foreign suppliers and consumers, subsidiary and affiliated companies in relation to liquidity of the MNCs. The cash flows and overall working capital can be monitored to show the operational exposure for the MNCs. The ...Show more

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Name: Institution: Instructor: Subject: Date: International Monetary Relations: Five steps to a more effective global treasury Companies in different regions are focusing their expansion in the developing countries a move that is adamantly creating difficulties in efficiency and effective business operations management…
Author : arnold98
International Monetary Relations essay example
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