The Role of Commercial Banks In Liquidity Management
Due to increasing globalization in the world economy, a lot of multinational corporations today have their businesses spread out across several geographies. This creates several management problems for multinational companies. Not only do they have to struggle with the complexity of managing personnel and operations in many countries but they also have to ensure proper liquidity management for their business.
In this article, we will try to understand what liquidity management is and what roles commercial banks have to play when it comes to the management of liquidity.
What is Liquidity Management?
Liquidity can be defined as having enough cash on hand required to pay the companys liabilities on time. Any excess cash needs to be locked up in investments that provide the highest yield possible while simultaneously being available to meet any contingency expenses.
Now, multinational corporations face a lot of difficulty in managing todays complex and reshaped liquidity landscape. This is the reason why liquidity management is not just an administrative function but has acquired strategic importance.
What Do Corporations Expect from Commercial Banks?
Just like multinational corporations, multinational banks also have their operations spread out across several geographies. This is the reason that corporations all across the world expect such banks to act like strategic partners when it comes to liquidity management. The common expectations which corporations have from commercial banks are as follows:
How Banks Can Provide Better Liquidity Management Services to Corporations?
Corporations manage liquidity for their own business. However, when it comes to commercial banks, they manage the liquidity for many other corporations as well. Hence, they have more advanced capabilities related to liquidity management which makes them the expert in this regard.
The fact of the matter is that commercial banks are an integral part of the liquidity management strategy of any corporation. However, larger corporations are more careful when it comes to managing their liquidity and hence they are the ones who generally partner more deeply with commercial banks.
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