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ALTERNATIVE ASSESSMENT

International Financial Management

Case 1

A key dynamic within any Multi National Corporation (MNC) is management of cash and also foreign exchange risk exposure. Cash management is critical and also heavily influenced by global dynamics. Within the Caribbean and South American jurisdiction, the economic framework is tightly connected with the major Asian economies of China and Japan, as well as the United States and the United Kingdom. The Caribbean and South American economy respectively, have been a barometer of the global economic cycle.

For the South American economy, many Multi-National Corporations have made significant investments in order to achieve a reduction in the production cost of goods and also diversification benefits. Despite the benefits that could possibly materialize, some South American countries have weak banking systems and also have not been resilient through Global market shocks and Financial Crisis. This weakness may be as a result of politics and the quality of prudential supervision. Given this context, respond to the following questions which require research with respect to the localized context and also within the current market dynamics.

1) You have been asked to evaluate possible sites for a South American production facility that will manufacture your firm's products and sell them to the United Kingdom and Japanese market. Outline and discuss five (5) real exchange rate considerations you should entertain in your evaluation? (10 marks)

2) Discuss two general functions involved in international cash management. Explain how the MNCs optimisation of cash flow can distort the profits of a subsidiary. (6 Marks)

3) Explain two benefits of netting. How can a centralized cash management system be beneficial to an MNC located in the Caribbean and South America? (6 Marks)

4) For a fixed exchange rate system to work successfully, the government that oversees its operations must be able to make tight budget and monetary policies prevail. Agree or disagree and justify your position within the context of the Caribbean and South American Economy? (8 marks)

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