Receivables Mgt

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    RECEIVABLES MGT

    A\C Receivables, Sundry Drs,Trade Drs,

    Book Debt

    Component of WC

    Current Asset

    Level of Liquidity

    1\3 of Total CAs

    Substantial Investment

    Avg. Daily Cr Sale X Collection Period

    Expressed in terms of Cost of Sales

    Obj: To Maximize value to the firm

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    Receivables Mg t:Chal lenge

    Design a CREDIT POLICY

    Vo lum e of Credit Sale

    Cred it Standards

    Credi t Analysis Credit Terms-Cr period ,CD,CD period ,

    Col lect ion Effort

    Str ingent o r Lenient \ Liberal po l icy

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    Credit Policy1. Marketing Tool2. Meet Competition3. Wean Customers from Competitors4. Customer Retention5. Market Share

    6. Cr Policy Evaluated for Costs-ReturnsCosts Admin Costs\Collection Costs

    Capital Costs Selling Costs Delinquency Costs Bad Debt Cost or Default Costs

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    Optimum Credit PolicyMarginal Cost-Benefit AnalysisIncremental Costs & Returns equal to Incremental

    Marginal Investment IMI= Incremental Profits

    Incremental InvestmentRequired ROR more than Borrowing Rate

    High ROR due to High Risk

    Four Steps for Optimization1. Estimate Incremental Operating Profits2. Estimate Incremental Investment3. Estimate Incremental ROR on Investment4. Compare Incremental ROR with Required ROR

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    1. Credit Standards: High, Good, Fair,OK2. Credit Analysis:Current Ratios, ACP, Quick Ration, D:E Ratio

    Bank ReferencesNumerical Credit Scoring: W1, W2, W3 for Income

    Level, Years in Business, Debt Portion3. Credit Terms

    4. Collection ProgramTrained StaffMonitoring receivablesLetters, mails, SMS, TelephoneThreat of Legal Action

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    Monitoring of Receivables

    1. Days Sales Outstanding2. Ageing Schedule3. Collection Matrix

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    INTERNATIOINAL TRADEBretton Woods Agreement-IMFBase Currency- US$

    Models1. Adam Smith Model-Cost Advantage

    2. Ricardian Model-Technology3. Heckscher-Ohlin Model-Factors of

    Production

    4. New Trade Theory-competition, Returnon Scale5. Gravity Model-Distance betweencountries

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    European

    Union

    4,567.0 2011 est.

    1 United States 3,969.0 2012 est.

    2 China 3,801.0 2012 est.

    3 Germany 2,768.0 2012 est.

    4 Japan 1,649.8 2012 est.

    5 France 1,226.4 2012 est.

    6United

    Kingdom1,127.0 2012 est.

    7 South Korea 1,068.7 2012 est.

    8 Netherlands 1,046.6 2012 est.

    9 Canada 962.6 2012 est.

    10 Italy 953.0 2012 est.

    11 Hong Kong 938.4 2012 est.

    12 Russia 900.6 2012 est.

    13 Singapore 821.0 2012 est.

    14 India 809.4 2012 est

    http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Italyhttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/European_Union
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    Foreign Exchange MarketFacilitates currency exchange

    Participants or Operators-Central Bank,Commercial Banks, Brokers, MNCs

    Type of Operators1. Arbitrageurs-Risk-free, rate

    fluctuations only2. Traders- import & export

    3. Hedgers-MNCs, Protect value4. Speculators- Profit motive

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    Forex Rates

    1. Direct quote- per unit of domesticcurrency2. Indirect quote- Units of domestic

    currency per unit of foreign currency3. Cross-Rate- Two countries trading in

    third countrys currency4. Bid-ask spread-buy & sell premium

    5. Forward rate- 30, 90, 180 days

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    Foreign currency Option

    Right to buy or sell a currency at an agreedrate on or before an agreed maturity period1. Call or buy option

    2. Put or Sell option

    Financing Operations1. Euro Currency-Syndicated,

    LIBOR+premium2. Euro Bonds-Bearer Bonds, Samurai,

    yankee, Bull dog

    3. Depository Receipts-ADRs & GDRs

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    Determinants of Exchange Rates

    Inflation Rates-Purchasing Power ParityTheory-Goods of equal value in countries areequated through an exchange ratePPPr= spot rate X (1+Rh)/(1+Rf) R-Inflation ratePPPr= spot rate X Ph/Pf P-Price index

    Interest Rates-Interest Rate Parity Theory-

    Discount \premium of a currency to anotherreflects the interest rate differential betweenthe two countriesFwd Rate= spot rate X (1+Ih) / (1+If)

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    Balance of Payments

    Foreign Exchange reserves (includingGold)

    Level of Activity & Employment

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    MNCs

    Trade BarriersImperfect labor marketIntangible assetsVertical integrationProduct life cycleDiversificationShare-Holder Diversification