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Global cash management system

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I need help in aswering these questions regarding a case study. Please be detailed and the answers need to be in paragraph form. I attached the case study. the questions are:

1) What are the strategic benefits to motorola of the global cash management system described in this case?

2) How important is the relationship between Citibank and Motorola to the developement, implementation, and smooth functioning of this system?

3) What factors helped Motorola to implement this system in a company where treasury operations had ben decentralized to various national operations?

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Motorola's Global Cash Management System

A multinational corporation with operating companies in more than 80 countries and sales in excess of $23 billion, Motorola is one of the world's leading providers of wireless communications equipment, semiconductors, and advanced electronics systems and services. Separate Motorola companies act autonomously and trade with each other on an arm's-length basis, often across national borders. Historically, each operating company managed its own payments with other Motorola subsidiaries and with independent suppliers and executed its own foreign exchange dealings. In the 1990s, however, Motorola built a global cash management system that managed transactions not only between Motorola operating companies, but also between Motorola companies and key suppliers. The evolution of Motorola's global cash management system dates to 1976 when the company decided to develop a foreign currency netting system for transactions between Motorola companies. The objective of this system was to achieve cost savings by reducing both cash flows and the amount of foreign exchange deals required to execute cross-border payments. Under this system, all foreign currency transactions between Motorola companies are managed with a single payment or invoice from a London-based treasury management center to each Motorola company once every week. Figures C.1, C.2, and C.3 show how this system reduces organizational complexity, while the following table gives a numerical example using the exchange rates detailed in Figure C.3 between the dollar ($), pound (£), euro (E), and yen (¥). By use of the table, the net payments for each operating company can be easily calculated. Specifically, Company A ( £550 _ £50 _ £500). Company B ($100 _ $140__$40). Company C (¥10,000 _ ¥125,000__¥115,000). Company D (E200 _ E400__E200). Before netting, the total amount of cash flows was the sum of all payments, which in dollar terms amounted to $1,320. The netted cash for each company is the sum of its payables less the sum of its receivables. In local currency, company A will receive £500, B will pay $40, C will pay ¥115,000, and D will pay E200. The netted cash flow in dollars is now $1,000. The center receives three different types of currencies, makes one payment to company A, and has a neutral cash position. The benefits of this system are a reduction in cash flows and in the volume of foreign ex-change dealings. Moving from localized treasury management to one centralized system realized an estimated annual financial saving from lower transaction costs (bank fees and ...

Solution Summary

This discusses various facets of global cash management system supported by a case study

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