Cash & Foreign Exchange Management Practices Chinese State E

By Soenen, Luc; Sun, Bin | Multinational Business Review, Spring 1995 | Go to article overview
Save to active project

Cash & Foreign Exchange Management Practices Chinese State E


Soenen, Luc, Sun, Bin, Multinational Business Review


INTRODUCTION

Little information is available on the current financial management practices by firms outside the free world. The People's Republic of China is a case of special interest because of the lack of survey data A working relationship with the Changsha Communications University (Hunan Province) reduced the difficulties associated with gathering data on Chinese state enterprises. The University is one of twenty-four campuses in P.R. China which are supervised by the Ministry of Transportation. An annual seminar on Management Accounting for transportation companies is held at Changsha Communications University. A Chinese language questionnaire dealing with different aspects of cash and foreign exchange management was distributed to all participants of the 1991 seminar. Notwithstanding the small size of this data base compared to the population of Chinese state enterprises, we believe that inferences derived from the available data base are very useful. Although few of the companies surveyed are directly exposed to foreign exchange risk, it is useful to briefly discuss the Chinese government policies on managing its exchange rate. P.R. China has an adjustable peg system in which the Renminbi (RMB) is linked to the U.S. dollar. China's official reserves are mostly held in U.S. dollars while the U.S. dollar is the main currency of denomination for international trade transactions. The RMB has been depreciated against the U.S. dollar at infrequent time intervals making the currency temporarily overvalued. An overvalued RMB reduces the costs of the much needed imports while it has no detrimental competitive impact on exports considering the low (labor) costs of products manufactured in mainland China. Under international pressure, particularly from the GATT and the U.S. government, the Chinese government has gradually reduced its foreign exchange controls and import restrictions and is determined to make the RMB freely convertible in the near future.

ISSUES RESEARCHED

The purpose of the survey was to investigate responsibilities and practices for short term financial management. A study of cash management must inevitably be linked to the study of banking relations and the management of foreign exchange. In recognition of these interrelationships, this study addresses the following specific issues.

Responsibility for cash management. It is hypothesized that cash management constitutes a major financial function in the firm and consequently, the responsibility for it within the firm should reside with senior management.

Cash flow planning. The preparation of formal cash budgets is a fundamental cash management activity. We investigate whether or not these Chinese state enterprises use some systematic procedure to project cash flows, as well as the extent to which formal quantitative models are used for cash management.

Banking relationships and the use of cash management services. We investigate the number of banking relationships these Chinese state enterprises have, the use of cash management services provided by banks and the degree of customer satisfaction relative to the services received.

Computerization of cash management. Balance reporting, electronic funds transfers, quotations of money market rates, and cash flow forecasting are some of the areas where computerized decision support systems have been developed to help those responsible for cash management. Also investigated in this study is the extent to which surveyed companies make use of computers in cash management.

Conflicts with other departments. Effective cash management requires information and active cooperation from other departments in the firm. The pursuit of fulfilling budget targets and corporate goals can result in opposing interests for different departments within the same enterprise. This survey tries to determine which departments are most likely to be in conflict with those responsible for cash management and how these conflicts are resolved.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Cash & Foreign Exchange Management Practices Chinese State E
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?