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Abstract
This paper outlines the theoretical models of international cash management and assesses their implications for corporate practice. Corporate practice is then reviewed through the analysis of survey research and case studies. It emerges that whilst the implications of theoretical models are captured in essence by corporate practice, there is scant evidence of companies using sophisticated models in international cash management. The practice of international cash management is largely driven by developments in communications and computer technology, relaxation of regulatory and tax impediments, the internationalisation of banking and the development of new banking products. International treasurers may therefore be able to find appropriate cash management solutions to meet their business needs with the co-operation of banks and technology providers. Further academic research should evaluate the extent to which corporate practice is consistent with extant multi-currency balance and network optimisation models and also explain why particular approaches to international cash management persist in companies.
Keywords: International cash management, multi-currency balances, network optimisation models, international funds transfer, international cash pooling, multilateral netting.
1. Introduction
Recent developments in computer communications technology, especially the internet, globalisation of banking, reduction in regulatory barriers in the major economies, and the marketing of innovative products by global and niche banks appear to have made an impact on the practice of international cash management. This paper reviews developments in the theory and practice of international cash management. From the theoretical angle, we outline models for the determination of optimal cash balances in a multinational setting
as well as models of optimal multilateral netting and international funds transfer and their implications for short-term borrowing, investment and hedging decisions. We then analyse changes in the practice of international cash management through the review of survey research and case studies. To this end, we highlight how developments in telecommunications and computer technology, the globalisation of banking, product development, reduction in regulatory barriers and the introduction of the single European currency have changed and continue to change regional and global cash management. The paper ends with suggestions for future research.
2. International Cash Management Models
2.1 Models of optimal cash balances in a multinational setting
The holding of foreign currency balances by multinational organisations is an integral part of international cash management which includes the determination...