An American Multinational Corporation has Subsidies Whose Cash Positions - Accounting Assignment Help

Assignment Task:

Task:

Question No 1:

a) An American multinational corporation has subsidies whose cash positions for the month of September, 2002 are given below:

Swiss subsidiary : Cash surplus of SF 1,50,00,000

Canadian subsidiary : Cash deficit of Can $ 2,50,00,000

UK subsidiary : Cash deficit of 30,00,000 (UK pound)

What are the cash requirements, if:

(i) Decentralized cash management is adopted?

(ii) Centralized cash management is adopted?

(Exchange rate : SF 1,48/$. Can $ 1,58/$, $ 1.57/£)

b) What is a Foreign Exchange Risk? How it can be managed.

Question No2:

ELECTRONICS LTD. your customer has imported 5000 cartridges at landed cost in Mumbai, of US $ 20 each. The company has the choice for paying for the goods immediately or in 3 months time. It has a clean overdraft limit with you where 14% p.a. rate of interest is charged. Calculate which of the following methods would be cheaper to your customer.

(i) Pay in 3 months time with interest @ 10% and cover risk forward for 3 months.

(ii) Settle now at a current spot rate and pay interest of the overdraft for 3 months

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