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While economic exposure is an important issue for the management of a multinational financial system, few models have been developed to measure this risk. The major challenge to measuring economic exposure is the interdependence of affiliate performances vis‐a‐vis changes in currency values. In this paper, a model has been developed that not only measures the sensitivity of the value of the firm to changes in currency values, but also recognizes the interdependence among the affiliates. The model takes a global view of the problem and also leads to guidelines for managing economic exposure. While the discussion focuses on geographically diversified multinational companies, the content of the paper is equally applicable to domestic companies.

Using daily returns from 1980‐2006, we find a significant contemporaneous association between all European Union (EU) equity markets and Germany. There is, however, no significant indication that the German stock market leads or lags the movements in the other EU stock markets. A higher share of imports by Germany from other EU countries, as well as fluctuations and increased volatility in the exchange rate, have negative effects on stock market co‐movements. Conversely, the difference in equity market capitalization with Germany, the greater the foreign direct investment by Germany, and the fact of belonging to the eurozone all contribute to greater stock market co‐movement.

Methods of capital budgeting have been well established in the finance literature as well as in corporate practice. In general, the discounted cash flow methods (IRR, NPV, PI) are considered to be superior. An investment project is therefore acceptable (at least in financial terms) when its net present value is positive or its internal rate of return is above the specified cut‐off rate. In case of capital rationing, we allocate funds and consequently approve projects in descending order of their profitability index to make sure we obtain the maximum present value per dollar invested.

How investors can capitalise on a long‐term currency trend by leveraging their investment in a mutual fund is investigated. The sensitivity of mutual fund yields to exchange rate movements and the degree of leverage is tested for a strong dollar cycle (1981‐1984) as well as for a weak dollar cycle (1985‐1987). The empirical results provide evidence of the benefits derived from leveraging investments in mutual funds in anticipation of a long‐term trend in the home‐currency′s value. To facilitate the foreign leveraging by the small investor, the creation of foreign levered mutual funds is suggested. While this study was performed from the US perspective, the general implications apply to investors in any country.

We have to define “cash flow”; it is variously defined in different contexts. Techniques of accelerating the flow are described.

There are several definitions of the concept of “cash flow” in the current financial literature. The article begins by reviewing the most recent definitions of cash flow. An arrow diagram, showing the flows in and out of the pool of corporate cash, has also been developed. The article then proceeds to examine techniques for accelerating the cash flow cycle, in particular the problem of accounts receivable collection. Indeed, the usual transfer time of payments in Europe varies from four to eighteen days, depending on the country of origin and the method of payment. This means that funds are permanently lost in “float” somewhere in the banking system. The amount of “float” results in an actual loss of working capital for the company. This illustrates the importance of techniques to increase the cash turnover. We limit ourselves to the more important techniques. Finally, we define and examine in detail the phenomenon “float”, a crucial concept in cash management.

A survey was conducted to gather information on current practices. In general large Belgian companies seem to be rather advanced in the development and application of an efficient treasury management system. The relatively high sophistication of their practices may or may not be a sufficient condition for high efficiency.

Since the demise of the Bretton Woods System of quasi‐fixed exchange rates in the early seventies, unanticipated exchange rate movements are a fundamental feature of the international economic environment. The ever increasing degree of exchange rates volatility has spurred the creation of new financing and hedging instruments and techniques. The proliferation of these financial innovations has confounded many treasurers as to the appropriate instrument or technique to be used in resolving a foreign exchange risk management problem. Notwithstanding the persistent and sophisticated nature of current foreign exchange risk management, there are situations where hedging does not protect the firm from large losses caused by unanticipated changes in exchange rates. We present three situations where hedging fails to protect the firm from risks arising from fluctuating exchange rates: first, where the firm has a continuous inflow of foreign currency; second, where foreign exchange risks are compounded by general and relative price risks; and third, where the perfectly hedged firm faces competition from unhedged rivals.

This paper derives a model for analyzing the net present value of a change in credit policy, in the presence of exchange rate uncertainty, tax differentials, and potential limitations on raptratiation of profits. When our model is compared to the standard model used in the domestic environment, we find a discrepancy, which we show to be an error in the latter model. We also find that the optimal timing of dividend payments depends upon after‐tax interest rate parity, rather than the widely‐used pretax interest rate parity.

Over the last 20 years, research has confirmed and reconfirmed the benefits of international diversification. [See Madura (1984) for a review of this research.] However, changes in international stock market and foreign exchange market behavior require that some issues be reassessed. First, how do potential gains from international diversification vary across perspectives? Most of the past research focused solely on a U.S. perspective. Solnik (1974) assessed various perspectives, but the period assessed was prior to the inception of floating exchange rates. Because of the high degree of integration of stock markets and the volatility of foreign exchange rales, a reassessment from various perspectives is necessary.