ACT companion to treasury management by Valerie Hawkes

By Valerie Hawkes

ACT significant other to treasury administration is greater than simply an replace of the vintage forst variation. it's been thoroughly rewritten to include all that has replaced in foreign treasury administration because the first version used to be written over twelve years in the past.

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Credit insur­ ance offers a viable way in which to hedge C O U N T E R P A R T Y RISK using traditional insurance market products, available from specialist providers. Credit insurance does have some drawbacks and tends to be used by compa­ nies as a last resort when factoring or the use of credit derivatives is not appro­ priate. One problem is that the premiums are based on actuarial pricing methods that are hard for the user to replicate. This makes it difficult for the insurance purchaser to evaluate effectively the cost of the protection, and thus to assess whether that cost is fair.

The first will confirm that the parent is aware of the facilities being made available by the bank to the subsidiary. The second will confirm that it is the policy of the parent to ensure that each of its subsidiaries (including the subsidiary in question) is provided with the necessary finance to enable it to meet its obligations to creditors as they fall due. The third requires the parent to notify the bank (or get the bank's consent) if it is propos­ ing to dispose of its shareholding in the subsidiary.

The reasoning for Modigliani and Miller's principle is as follows - by increasing the gearing, the company is increas­ ing the volatility of earnings that the shareholder can expect. This will have an effect of increasing the rates of return on equity until a constant overall cost of capital is maintained. 34 Cost of capital For most analytical purposes, where companies are examining the marginal effects of change in financial structure, it is safer to go along with the Modigliani and Miller view unless specific market imperfections have been noted.

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