Practical finance for Policy and decision makers

preencoded.png Practical finance for Policy and decision makers The goal of this presentation is to provide practical exercises for policy and decision makers, to provide better regulatory infrastructure for the former and achieve better results for the former. Mazen Chehimi Richard beainy preencoded.png Case 1 Coca-Cola and Factoring preencoded.png Currency Risk Management Through Factoring As of October 22, 2026, Ms. Linda Moreau assumed the role of CFO at Coca-Cola International. In her strategic review of currency risk exposures across high-volatility markets, she proposed evaluating factoring as an external risk management tool. This presentation examines what factoring entails, how it mitigates currency risk, and whether it represents a sound strategic option for CocaCola's emerging market operations. Mazen Chehimi Richard beainy preencoded.png Understanding Factoring: Definition and Mechanics What Is Factoring? Mazen Chehimi Richard beainy Factoring is a financial arrangement where a company sells its accounts receivable to a specialized institution—the factor—at a discount. Rather than waiting 60 to 90 days for customer payments, companies receive immediate cash, typically 75% to 95% of the invoice value. The factor assumes responsibility for collecting payment from customers, transforming uncertain future cash flows into immediate liquidity. preencoded.png How Factoring Reduces Currency Exposure Instant Currency Conversion Coca-Cola receives immediate payment in stable currencies like USD or EUR, eliminating exposure to local currency depreciation in markets such as Turkey, Egypt, or South Africa before customer payment arrives. Compressed Exposure Window Traditional 60-120 day payment cycles create prolonged currency risk. Factoring reduces this window to zero, protecting against sharp exchange rate movements during collection periods. Credit Risk Transfer Under non-recourse factoring, the factor absorbs customer default risk— particularly valuable in countries with fragile banking systems, slow-paying distributors, or elevated counterparty risk. Mazen Chehimi Richard beainy preencoded.png Strategic Benefits for Coca-Cola Mazen Chehimi Richard beainy Factoring delivers multiple operational and financial advantages, particularly for multinational operations facing currency volatility and working capital constraints in emerging markets. 1It hedges (reduces) currency volatility risk 2it hedges (reduces) default risk, which is the risk that the buyer will not pay the seller 3it provides Immediate liquidity to the company selling (instead of receiving 100% of the money after 90 days, they receive 95% of the money today). preencoded.png Important Limitations to Consider High Cost Structure Factoring involves multiple costs: discount rates (typically 1-5% of invoice value), interest charges on advances, and administrative fees. In markets with already thin margins, these expenses can significantly erode profitability and ROI. External Dependence Coca-Cola relinquishes direct control over customer relationships and collection processes. The company becomes dependent on the factor's efficiency, customer service quality, and collection practices—which may not align with corporate standards. Limited Applicability In developed markets with stable currencies, strong banking systems, and reliable payment cycles (US, Western Europe, Japan), factoring adds cost without commensurate benefit. These markets require different risk management approaches. Mazen Chehimi Richard beainy preencoded.png Strategic Recommendation Should you Apply factoring in your company? Target Markets Egypt, Turkey, Argentina, Nigeria, South Africa—regions with volatile currencies and extended payment cycles Integrated Approach Combine with internal hedging (netting, matching, leading & lagging) and external instruments (forwards, swaps, options) Mazen Chehimi Richard beainy It depends on the Case Factoring is recommended for high-volatility currency environments only. It should be implemented strategically in subsidiaries operating across the Middle East, Africa, and Latin America where currencies fluctuate dramatically and collection delays are systemic. preencoded.png Case 2 Nestle in Egypt preencoded.png Understanding the Calculations Historical Cost in CHF 18,450,000 EGP ÷ 75 = 246,000 CHF This is the original cost translated at the February 2027 exchange rate. (Closing Rate) Current Rate Value in CHF 18,450,000 EGP ÷ 150 = 123,000 CHF This is the same inventory translated at the December 2027 exchange rate. (Historical rate) The monetary / non-monetary method translates monetary item (Cash-debt-AR-AP) at the closing (current) rate and non-monetary item are retained at historical cost. The temporal method translates items that have been previously revaluated at the current rate while items that are retained at cost (not-modified earlier) under historical rate Mazen Chehimi Richard beainy preencoded.png Why the Methods Differ Current Rate Methods All-Current and Current/NonCurrent •Inventory translated at yearend rate (150 EGP/CHF) •Reflects current economic reality •Result: 123,000 CHF •Recognizes currency loss immediately Historical Rate Methods Monetary/Non-Monetary and Temporal •Inventory at historical rate (75 EGP/CHF) •Preserves original cost basis •Result: 246,000 CHF •Defers recognition of currency impact preencoded.png Key Takeaways for IFRS Translation 1Method Selection Matters Translation method choice can create 100% variance in reported inventory values—from 123,000 to 246,000 CHF in this case. 2Inventory Classification Is Critical Understanding whether inventory is monetary vs. nonmonetary, or current vs. non-current, determines which exchange rate applies. 3Currency Risk Is Real Emerging market volatility (like Egypt's 50% depreciation) creates significant translation exposure for multinational corporations. Mazen Chehimi Richard beainy preencoded.png Case 2 Nestle in Egypt Case 3 Ukraine Central Bank preencoded.png Money Supply and Monetary Policy Understanding reserve requirements, money creation, and policy implementation lags through real-world scenarios Mazen Chehimi Richard beainy preencoded.png The Ukraine Case Study Scenario Overview Ukrainian banking system holds 120.5 billion euros in current deposits. The central bank maintains a Required Reserve Ratio (RRR) of 20%. This case examines how changes in reserve requirements affect money creation and explores the timeline of monetary policy responses during a currency crisis. Mazen Chehimi Richard beainy preencoded.png Part 1: Calculating Required Reserves 01 Given Information Current deposits: 120.5 billion EUR Required Reserve Ratio: 20% 02 Apply the Formula Required Reserves = Deposits × RRR RR = 120.5 × 0.20 03 Solution Required Reserves = 24.10 billion EUR This amount must be held by banks and cannot be lent out Mazen Chehimi Richard beainy preencoded.png Understanding Reserve Requirements What Are Required Reserves? Required reserves are funds that banks must hold and cannot lend. They serve as a buffer against bank runs and give central banks control over money creation. The 20% Rule in Ukraine With a 20% RRR, for every 100 euros deposited, banks must keep 20 euros in reserve and can lend out 80 euros. Mazen Chehimi Richard beainy preencoded.png Part 2: Money Creation Through RRR Changes When the Required Reserve Ratio decreases from 20% to 12%, banks can lend more money. Let's calculate the impact. Step 1: Calculate New Required Reserves At 12%: RR = 120.5 × 0.12 = 14.46 billion EUR Step 2: Find Excess Reserves Freed 24.10 − 14.46 = 9.64 billion EUR now available to lend Step 3: Apply Money Multiplier Formula : M = 1 / RRR Multiplier = 1 ÷ 0.12 = 8.33 Step 4: Calculate New Money (Money Created = New Loans × Multiplier M) 9.64 × 8.33 = 80.3 billion EUR in new money created Mazen Chehimi Richard beainy preencoded.png The Money Multiplier Effect 20% Original RRR Multiplier: 5.0 12% New RRR Multiplier: 8.33 80.3B New Money Additional euros created The decrease in reserve requirements amplifies the banking system's ability to create money. Each euro of freed reserves generates 8.33 euros through multiple rounds of lending and redepositing. preencoded.png The Hypothetical German Economic Challenge Current Situation Official institutions in Germany stopped publishing reliable public debt figures after 2037, creating significant uncertainty for investors and policymakers. Proposed Solution An international support package of $8 billion USD, combined with comprehensive structural reforms, could significantly stabilize the economic situation. Key parameters: •MPC: 0.8 •Tax rate: 20% Mazen Chehimi Richard beainy preencoded.png Learning outcome: Understanding Crowding Out What mechanisms can cause crowding out effects in Germany’s economy? Mazen Chehimi Richard beainy preencoded.png The Crowding Out Mechanism Government Borrows Heavily Large-scale issuance of domestic bonds to finance deficit spending Credit Reallocation Banks shift lending from private sector to government securities Interest Rates Rise Increased demand for credit pushes market rates upward Private Investment Falls Firms and households reduce borrowing and investment The key insight: When government finances spending through domestic borrowing rather than taxes or external grants, it competes with the private sector for limited credit resources, ultimately reducing private investment and consumption. Mazen Chehimi Richard beainy preencoded.png Learning outcome The Liquidity Trap Problem Under what conditions could Germany experience a liquidity trap where monetary policy becomes ineffective? Mazen Chehimi Richard beainy preencoded.png Causes of a Liquidity Trap in Germany Deep Economic Uncertainty Lack of confidence in currency stability and banking sector integrity undermines the transmission of monetary policy Banking Sector Fears Concerns about potential bank failures lead agents to hold physical cash or foreign currency rather than deposits Ineffective Interest Rates When rates are already very low, further reductions provide no incentive to shift from money to bonds or investments Critical Result: Even when the central bank injects liquidity and expands the monetary base, banks hold excess reserves and households hoard cash. Additional liquidity fails to translate into higher spending and investment— monetary policy becomes powerless. Mazen Chehimi Richard beainy preencoded.png Learning outcome: Calculating the Fiscal Multiplier Effect How much would Germany’s national income expand from an $8 billion USD government expenditure increase? 01 Compute Effective MPC After Tax MPC × (1 − t) = 0.8 × 0.8 = 0.64 02 Calculate the Multiplier k = 1 / (1 − 0.64) = 1 / 0.36 ≈ 2.78 03 Determine Income Change ΔY = k × ΔG ≈ 2.78 × $8B ≈ $22.2B Mazen Chehimi Richard beainy preencoded.png The Multiplier Formula Explained Key Formula Where: •MPC = 0.8 •t (tax rate) = 0.20 • ΔG = $8 billion Why the Multiplier Works Government spending creates a chain reaction: initial expenditure becomes income for recipients, who spend 80% of their after-tax income, creating more income for others. The proportional tax reduces each round of spending, but the cumulative effect still amplifies the initial injection significantly. With a multiplier of 2.78, each dollar of government spending generates nearly three dollars of total economic activity. Mazen Chehimi Richard beainy preencoded.png Income Expansion: The Bottom Line $8B Government Spending Injection International support package fully deployed as fiscal stimulus 2.78 Fiscal Multiplier Each dollar generates additional economic activity through consumption rounds $22.2B Total Income Expansion Estimated increase in national income from the fiscal intervention The analysis demonstrates that strategic fiscal policy, when properly calibrated to Germany’s economic parameters, can generate substantial multiplier effects and meaningfully improve economic conditions. Mazen Chehimi Richard beainy preencoded.png Key Takeaways for Policy Design Financing Matters How government spending is financed determines whether crowding out occurs. External grants and taxbased financing minimize displacement of private investment. Context Shapes Effectiveness Monetary policy loses traction in liquidity traps. When confidence is low and rates are near zero, fiscal policy becomes the primary stabilization tool. Multipliers Amplify Impact With an MPC of 0.8 and 20% tax rate, Germany’s multiplier of 2.78 means well-designed fiscal interventions can generate outsized returns for a small economy. Reform Complements Stimulus The $8 billion support package must be paired with structural reforms—restoring institutional credibility, transparency in debt reporting, and banking sector stability—to maximize long-term impact. Mazen Chehimi Richard beainy preencoded.png Mazen Chehimi Richard beainy Other References and Notable works from CIRAME Kaspard, J. A., Khalil, F. C., & Kamel, C. A. (2025). Factors Contributing to Non-financial Performance of Companies. In Sustainable Economic Development: Utilizing Non-Financial Performance, Sustainability Reporting, and Corporate Governance (pp. 413-442). Cham: Springer Nature Switzerland. Kamel, C. A., Kaspard, J. A., & Khalil, F. C. (2023). The Information System of Lebanese Exporting SMEs. Journal of Law and Sustainable Development,11(6), e1212-e1212. Kaspard, J., Chapellier, P., & Gerbaix, S. (2017). PME et TIC: de l’appropriation à l’utilisation pour une meilleure performance, une revue de la littérature. Proche-Orient Études en management,29, 21-36. Makki, M., Kaspard, J., Khalil, F., & Mawad, J. L. (2024). Renewable Energy Consumption Determinants: Do They Differ between OilExporting Countries and Oil-Importing Ones?. Sustainability,16(17), 7295. Jafarigorzin, S., Khalil, F. C., Khalil, L. J., & Kaspard, J. A. (2025). Machine learning-based localized predictive modeling of household energy consumption in the Netherlands. Energy and Buildings, 116420.