The idea of globalization, which is characterized, with free movements of people, goods and services and capital between and among countries permitted by the advent in technology information, has revolutionalized how mankind does his things. Because of this, the world does not have any doubt converted into a global village designed by interconnectedness and interdependence. The globalization of trade and financing is changing international interactions at several levels of interaction. It is also the case when evaluating international identification, community, knowledge and the environment. There is hardly any that can't be linked with globalization when learning international business (Adler & Gundersen, 2008). The task of this paper is to look at a situation where a firm partcipates in business with other countries. In order to be able to succinctly cover this matter the paper will describe what is recommended by multinational organization and give clear reasons why companies expand their operations abroad. A portion of the newspaper will also differentiate multinational financial management from financial management as applied by purely domestic firm, the issue of money prices may also be tackled and some calculation performed predicated on a set of data provided.
On top of the, the paper will also treat the issue of convertible currency and point out the issues that can occur whenever a multinational company performs in a country whose money is not convertible, between difference between area rates and front rates are and affect of relative inflation on rates of interest and exchange rates. Lastly, a section of this paper protects principles international capital marketplaces and the impact of multinational operations on cash management, capita; budgeting decisions, credit management and inventory management.
With the idea of globalization, it is vital for managers and business people to understand it in order to be able to contribute sustainably with their organizations in this competitive business world. Religious, J. et al (2006) research indicates that most companies are today going globally to seek for additional profit. Multinational Organization has been thought as a firm or company that is duly listed having facilities and assets in at least one country other its home country. It really is worth mentioning that multinational corporations have offices, factories and stores in several countries. In multinational businesses, most companies have mom organizations that provide grow to sub-branch companies which may be placed in several geographical world areas. The created company branches however are more likely to take after the mother company's mode of management system (Claire, 2008). Nonetheless, the operations are coordinated from the top office, which is usually situated in the home country. The organization partcipates in global transactions, which are in the nature of goods, services, technology, managerial knowledge, and capital. Therefore, multinational organizations get excited about both importations and exportation of all these business transactions.
It will be rational to expound on how Multinational Corporation happen. From literature, scholars have established that certain way Multinational Corporation come into presence is through the initiatives of your company to open up new companies with one headquarters in one country probably the country of source. With this, the firm is able to produce goods and services with the facilities found in the different geographical locations. That is a thorough activity because the company must go through certain legal requirement before being given a node to establish its roots in the coordinator countries.
Another common way that gives labor and birth to multinational companies is through mergers. This is when at least two companies established in several countries come together in most cases to cope with the problem of competition through gaining competitive edge either by coping with warfare prices, reduce costs associated with advertisements and promotions among others. Lastly, they come about because of acquisition as well as hostile takeovers. Acquisition is where one organization buys another company from another country.
The desire to have companies to visit global rests on the idea that by operating in a global environment it's possible for the business to hue off financial as well as political shifts compared to corporations that operate in one country. Other benefits include starting the entrance doors for diversifications, access to resources and labor. Even during financial crisis well established multinational organization have the possibilities of staying solvent this is true if particularly if one of the subsidiaries is not doing this well which is recording deficits (Adler & Gundersen, 2008).
Questions have been elevated concerning businesses widening their wings into other countries. To answer this newspaper will succinctly discuss reasons why businesses have taken the advantage as a result of globalization.
One of the reason why that produce companies to extend into the global business environment is to extend its market basic and share which ultimately brings about increased earnings and profit. Ideally, when a company introduces a new product or service into a fresh market, it provides such a firm the chance to grow and grow. A typical example of such a company that took advantage of globalization is Coca-Cola. Following its establishment in america, it grew to a point that it had not been possible to increase its market share with the U. S. The desire to extend its operations other continents such as Africa, Europe, North America and Asia has seen to it that it is a multibillion organization having the major customer foundation (Christos & Sugden, 2000). Another example of a company that has realized the features of going global in its business procedures is MAC beauty products. Being a small company that deals with cosmetic, the organization ventured into international business environment, the company ended up selling their products in over 120 countries hence controlling around 45. 0% of plastic sales on the globe.
It has been shown that companies opt to go global establishing other subsidiary branches far away to take advantage of human resource. Even though some might argue that it might be cheaper to employ some as expatriates, these group of people will be paid salaries predicated on the laws of the country. However, to avoid this and take advantage of cheaper cost of labor, the only way is to open business operation in other countries where the cost of labor is controllable and cheaper. For example, in america of America labor is much expensive and the same pertains to major developed countries (Christos & Sugden, 2000). However, generally in most developing countries, the price of labor is cheaper and this can explain why an organization such as Coca-Cola has customized in extending in growing countries such as Brazil, Kenya amongst others. It is worthwhile noting the thought of lowering costs helps a multinational organization gain competitive gain that has forced more businesses to broaden their operations in a worldwide environment.
In addition to this fact, major firm desire to use far away is motivated by the search to reduce costs. When organizations search outside their edges, there is, anticipation that they will eventually finds more economical solutions to that they produce and create goods and services. This can be attained through lots of ways such as looking for cheaper labor which includes been discussed in the previous section, moving the production processes closer to the locations of natural resources, take advantage of new technology as well as enjoy benefits associated with different tax set ups. To demonstrate this, a company situated in america and gets a greater ratio of resources from India might wish to consider moving its operation closer to India or even in India. This will likely ensure that the travelling costs are reduced to a larger extent. If Kahawa Ltd can take the initiative to operate in Asia, it'll then have the ability to enjoy the benefits of lower labor cost compared to when operating in Europe.
Another reason that businesses consent to working in a worldwide environment rests on the ideas of seeking raw materials. It is worthy of mentioning that this was the major reason behind earlier multinational organizations to grow their wings abroad. This is illustrated particularly in the past centauries where organizations from Britain, France and other colonizers extended and started setting up their businesses in their colonies. The primary reason for this is to take good thing about the natural resources and other costs of productions such as land and labor. The major reason behind heading international was to exploit the uncooked material that was found in other countries. Typical types of modern day organization include petroleum and mining companies like the Uk Petroleum Standard Essential oil, International Nickel as well as Kennecott Copper are among varieties that took advantage of the idea of exploiting raw materials found overseas. Broadening procedures to Asia will give Kahawa Ltd an opportunity to utilize raw materials that are in given countries in that region helping it avoid the costs associated with transporting the recycleables to its headquarters.
In the previous section, it was indicated that one way that led to existence of multinational companies is as a results of mergers and acquisition. Because of globalization, the business world has been characterized with very stiff competition. The competitive advantages businesses had and assumed that no other company could imitate them became wrong since new firms' derived better means of doing business. Likewise larger companies conquered markets across the world making it very difficult for smaller businesses to be competitive and stay relevant in the market. To be able to protect their life businesses go international by building mergers with other bigger or smaller businesses. The advantage this brings is reduced wars in terms of price, reduced costs of advertisements among others. Similarly, when firms get together, the synergy in conditions of resources makes it possible to continue to be relevant and meet up with the demands and dreams of the customers. On a single take note even without building mergers or acquiring other firms, when businesses expand globally, they get chance to protect themselves from competitors or potential competition since they increase their market base and share.
Interestingly some businesses have removed global to avoid politics as well as regulatory hurdles. Even though a small business may be domestic, there are a few countries, that have very strict regulations about how businesses should operate; this is after factoring in the original hurdles that needs to be found by the owners before establishing such businesses. Additionally there are a few countries, that happen to be politically unstable. Alternatively, since every country has its own laws and regulations, a firm will dsicover it favorable to set up a fresh subsidiary in another country because the legal aspects are less complex and the business enterprise is guaranteed of undertaking its operations effortlessly without political interferences. For Kahawa Ltd it could be problematic for it to continue checking new subsidiaries in European countries or even in the U. S in comparison to countries in Asia. This will give it an chance to open up its business within shorter time span and meet less or evenly clear-cut legal requirements. On a single note, the issue to do with tax advantage can be a motivation for a company to move global. Tax benefits can help a business to offer its products at a lesser price leading the organization to accumulate huge profits. Typical examples of heading international to avoid political and regulatory holders is when businesses such as Toyota, Mazda as well as Honda shifted their functions to america in order to avoid import quotas.
Lastly, the issue of diversity will come in as another important reason that makes corporations grow their operations to other countries. Although it has been shown that financial crisis if it hits developed countries, it is possible that the majority of the countries will be adversely affected. However, if recession is regional, then those businesses that have committed to one country might be required to close down if financial meltdown is to hit that country. With such realization, businesses have taken the benefit of globalization and resorted to buying hospitable countries. It has made certain that large firms such as Coca-Cola continue documenting earnings even if one of its subsidiaries is negatively impacted with financial crisis. In the case of Kahawa Ltd, expanding its procedure in Asia will likely cushioning it from the negative influences of financial meltdown for instance the main one experienced recently in the Eurozone
Financial management in domestic and international firm
As noted in the previous sections there are always a varied reason which makes businesses to operate in several country. Among these reasons include reducing cost, avoid political and regulatory holders, increase market talk about, and utilize recycleables from other countries to say but a few. With this comes the problem of financial management. Financial management has been regarded as the process to plan, direct, monitor, organize, and control a firm's financial resources. It is worth to notice that the popular financial goals of multinational firm include the following; maximizing progress in terms of corporate earnings, maximizing return on collateral as well as guaranteeing that money will be always available if you need to. With this in mind, it's been observed that the problem of financial management in home and international environment is solely different. Because of this, it is important to bring to light these dissimilarities so that those businesses that are preparing to expand their procedures abroad get to know very well what they expect and sufficiently prepare themselves so that the effort will yield excellent results.
The first difference is about currency denominations. In case there is a multinational organization, it is no doubt that cashflow will maintain form of different currency denomination. For example if a firm operates in america, Japan, Kenya, South Africa and the Great Britain, financial professionals have to brace themselves to truly have a full understanding about how the issue of exchange rates, inflation, interest rates play and effect on their business activities. On the other hand a domestic firm will not need to stress a whole lot about learning and examining the impact of overseas financial characteristics such as interest levels, inflation or even exchange rates since it can business locally and cash flows is in a single money although of different denominations. For the truth of Kahawa Ltd it has to employ well-qualified financial experts or take the initiative of taking the prevailing financial experts for further training in order that they can help the firm to handle financial issues in a worldwide environment.
It is also a fact that businesses at onetime of their procedures should increase more capital to increase or grow their procedures. For multinational businesses there are various options to raise capital required. It is thus understood that with a lot more option of bringing up capital, the company should have the required workers with needed and relevant skills to advice the company on which of the choice of elevating capital is less expensive to the business. This is related to the fact that a variety of options brings with it a number of challenges with respect to choosing the right and better source of capital. With this thought, Kahawa Ltd should brace itself to acquire at its removal the right funding human resource to handle the challenges predicted. This will call for training as well as educating their existing officers so that they will be at par with the varied requirements that will help it secure capital at affordable cost.
More essentially, for those firms that operate in several countries, there may be the task for the financial administrator to take care of the differences brought about by the monetary and legal structure. An ancient expressing states that whenever one goes to Rome, there may be need for see your face to do as Romans do. This is more pronounced when a firm documents its financial details. While a domestic corporation is only going to worry to follow the financial taking laws mentioned by the sponsor country, those firms that operate in a variety of countries haven't any option but to stick to two financial structure of confirming their records. A typical example is whenever a firm in the UK works in US. Such a firm will be compelled to adhere to the GAAP accounting specifications as well as UK accounting benchmarks. Recently, with the launch of International Financial Reporting Requirements multinational corporations should grasp how the basics of IFRS apply. Various specifications contained in the IFRS affect the tax survey. Hence, it is important that enterprises should put into account all the IFRS related adjustments before implementing the criteria or when adopting them on a continuing basis. Clients should make sure that they understand the duty conditions that could occur from adopting IFRS impacting their companies (Hay. et al. , 2006). It really is worth mentioning that IFRS comprises of a set of principals proven by the IASB dictating specific treatments of the accounting types of procedures. They include the International Financial Reporting specifications (IFRS) issued following the 12 months 2001, International Accounting Requirements (LAS) issued after 2001, Ranking Interpretations Committee (SIC) given before 2001, and Conceptual Framework Work with Financial Reporting (Wu, 2007). In such a situation Kahawa Ltd in order to be seen to comply with such specifications, they have no other option other than adopting them. That is contrary to just what a domestic company is likely to behave.
Another major difference between financial management in domestic and international environment lies in the twin concept of language and ethnic differences. Although it is a fact that even within confirmed country, there exists some dissimilarities in culture and some degree the language, they are more pronounced when one considers different countries where multinational companies operate. Culture identifies a set of believes, values, and behaviors employed in a particular world (Brickson, 2000). In business organizations however, culture is defined as a system where the staffs share principles and believes that are linked to the organization's people, framework, and control system to produce behavioral norms (Gonzales, 2009). You will discover four organizational culture types specifically market, clan, adhocracy and bureaucratic hierarchy. Each of the four culture types is characterized by a certain set of shared believes. Going for a global approach, studies indicate that nationwide and ethnic civilizations have affect on organizations and employees well being.
Based upon this fact, there is certainly dependence on the firm to totally understand how culture impact how for occasion culture of confirmed region impact about how to advertise and promote a given product in conditions of the advertising used, slogan used among others. The finance managers should understand these concepts so that they can be able to allocate money on assignments that will continue making revenue and earnings for the organization. For example McDonald has perfected this concept by ensuring that the menus they may have in various locations reflects what sort of host population have confidence in terms of food. In the same way, addititionally there is the problem of conflict management, which is influenced immediately by culture. You will discover societies that like confronting the conflicts in a formal way while other like the Chinese language like approaching issue in an casual manner. Kahawa limited should enjoy her managers to familiarize themselves with the various cultures in order that they can help the company attain its goals of going global.
Similarly, the issue of language is crucial for international companies while controlling financial aspects. There is absolutely no doubt that the ability to effectively communicate is very important in ensuring even operation in operation. Even though English is now a global words used in doing business, the ability of an business to get employees who understand local terms sees it easy to conquer such markets. For example doing business in Spain calls for one to fully understand Spanish, this not being enough there are a few locations where one is by using Catalan, Galician or Basque vocabulary to charm to an array of customers. For this reason, multinational companies including Kahawa Ltd should brace itself to feet extra costs related to educating and training its staff, translating company laws among other issues related to culture and language.
The issue of political risk and the role of federal give another bottom to distinguish between financial management for a home firm and for one that functions in a worldwide scale. With the idea of sovereignty, it has been argued that a nation can decide to exercise its mandate by guarding its citizen particularly if it emergences that a given company is exploiting her citizens. This can be done by seizing a firm's property or obstructing it from repatriating the accrued earning. This can make the affected organization to lack money to continue with its daily operations. It really is thus mandatory for the organization to purely adhere with the regulations of the coordinator country such that it locates itself in good catalogs with the federal government.
More importantly, it will probably be worth noting that just how one federal engages with overseas firms varies. For instance, most developed countries such as U. S play less direct role about how exactly foreign companies conduct business provided they have met the initial requirements of subscription. Similarly, some authorities has set up legislation and tariffs targeted at protecting domestic organizations while others provide incentive in trade for jobs because of its citizens. There's also concern related to problem, efficiency and bureaucracy. It is upon the company to familiarize itself with each one of these aspects, as it can help it operate in new environment easily.
Exchange rates decisions in multinational corporations
Exchange rates with the idea of globalization which includes pushed organizations to open up businesses far away, there is have to have a complete understanding about the pace of which the currency of 1 given country will be exchanged for the currency of a different country. This also offers business organizations working in other countries to understand the value of one country's currency with regards to another. This idea is what has been termed as exchange rate or forex rate. You will discover basic terms and concepts related to switch rate that needs to be mastered. From the desk below (stand 1) it will probably be worth noting that the money prices are direct quotations. This is explained by the actual fact that the beliefs represent the value of a local currency in conditions of a product of foreign currency, for instance to buy in order for one to buy one Japanese yen, Ksh. 89. 43 is necessary. On the other hand, indirect quotation identifies the number of units of a forex that are needed to buy one dollars or a local currency. From the same stand one can easily determine the indirect quotations for the money of any given country. In order to reach indirect quotation values, one needs to just find the reciprocal of the immediate quotations for the respected country's currency in this case Yen and Hong Kong dollar.
For japan Yen, the direct quotation=1/89. 43
For the Hong Kong Dollars, the immediate quotation=1/10. 28
All these are illustrated in table 2.
Table 1 Direct quotation
KSH necessary to buy one product of international currency
Japanese Yen (000)
Hong Kong Dollar
Table 2 direct quotation and indirect quotation
Hong Kong Dollar
With regards to mix rate, this refers to the exchange rate between any two non-dollar currencies. A comparatively large number of combination rates would be required to trade every money directly against every other currency. For example, N currencies would require N x (N-1)/2 independent cross rates. Because of this, most exchange rates are quoted in conditions of us dollars and by far the greatest level of trading directly involves the buck. This reduces the amount of cross-currency quotes that sellers must keep track of and reduces the actual deficits associated with mispricing currencies in accordance with one another. In order to calculate the combination rates between Yen and Singaporean Money, it's important to note that we now have two options; an example may be to either separate the direct and indirect quotations or perform a reciprocal operation of every of the currency under exploration. For the purposes of the assignment I thought we would divide the indirect quotations, the justification for doing this is usually that the approach is straightforward and straight forward characterized with simpler computations.
The two cross rates between Japanese Yen and Singaporean Dollar are,
Cross rate=0. 0112/0. 0188
=0. 0565 Yen per Singaporean Dollar
Cross rate=0. 0188/0. 0112
=1. 6785 Singaporean Money per Yen
It is an undeniable fact that companies are in operations to make profits. The worthiness that a company adds to the total cost they experienced while producing given good or product for sole reason of creating earnings is termed at tag up. It is the profit made through deal of goods and services that helps a business to continue jogging by paying expenses, salaries among others. Different organizations have various rules on how to create profit, for illustration, one may suggest that for every good or services, a 50% mark up should be enforced.
In the case of Kahawa Ltd which intends to deliver one lot of caffeine to Hong Kong costing Ksh. 30 million, if the company wants to make 50% make up, then the coffee will be at how much in Singapore?
To succinctly respond to this question you can find need to first calculate the combination rates between Hong Kong and Singaporean Dollars.
Cross rate=0. 0973/0. 0188
=5. 1755 Hong Kong Money per Singaporean Dollar
Cross rate=0. 0188/0. 0973
=0. 1932 Singaporean money per Hong Kong Dollar
The total sell in Singaporean Us dollars that the espresso will be sold for the business to realize a 50% mark will be; 30, 000, 000(0. 1932)*53. 13
=307, 941, 480
The one lot caffeine should be sold at 307, 941, 480 Singaporean us dollars for the firm to realize a 50% mark up.
Spot rate has been thought as the current value of a given currency. It is well worth noting that the worthiness varies accordingly because of this of trading on the currency exchange. In other words, spot rates make reference to the value paid to buy money for immediate delivery usually within a two-day after the day the purchase took place. On the other hand, frontward rate has been thought as confirmed exchange rate or value at which two countries or parties agree to trade currencies. Mostly the engaged parties enter a forward contract, which obviously stipulates that, confirmed exchange rate or value will be utilized during business deal for specific period. In simpler words, onward rate is the rate paid to purchase currency for delivery at some agreed future day for instance 3 months, 6 months and so forth.
Forward rate is deemed to be at discount if and only if the forward money is less valuable set alongside the spot currency. Alternatively, in situation where in fact the forward currency keeps more value compared to the spot currency, then your forward currency is deemed to be at high grade.
It is important to mention the benefits associated with such an design. Generally, the worthiness of currencies fluctuates every day and even within hours. For this reason, after entering a business package with another firm or business, it is important for the organization or business buying a product or something to cushioning itself from value doubt of currencies. To do this businesses have managed to use money forward markets to hedge against fluctuation in the prices of currencies before the exchange is finalized.
For illustration, if Kahawa Ltd has generated its subsidiary in Japan and wants to buy some products from Hong Kong, and the repayment should be made within 2 a few months. There is need for the organization to enter an contract with the partner in Hong Kong based on the value of money that will be used to make payment within 2 a few months. This will help the firm not to use more Japanese Yen in case the value of Yen depreciates. In order to protect itself from such happening, Kahawa can take part in buying Hong Kong Money for delivery within 2 month, hence locking in the current forward rate.
With globalization, countries were pressured to adopt an open up door policy in so doing encouraging foreign direct investment. The notion to carrying this out rests on the ability of globalization to help countries grow economically, combat poverty, reduce lower rate job, ensure that individuals resource are educated and been trained in a multitude of filed amongst others. However, with each one of these it surfaced that there is need for overseas companies and even domestics businesses to have the freedom of buying goods and services in whatever currency they wish. This brought to light the concept of convertible money.
Ideally, convertible money identifies currencies that one may quickly buy or sale without always having the agreement to take action from the central bank or investment company. It is import to say that in the recent past only a few currencies are convertible; however, over time many countries have made their currency convertible to be able to encourage traders both of the international and local origin. Any money easily traded in forex easily and exchanged in an exclusive situation bottom part on stipulation of regulations is a convertible money. In order for a country to understand full currency convertibility, there exists dependence on the authorities to allow everyone, residents as well as non-residents to trade home money for other currencies easily with n constraints. However as known in the books, it's important for the federal government to be keen in making certain some deals such as residents buying a overseas asset.
It would be logical to give some reasons why the problem of currency convertibility has gained reputation. To illustrate this, I will examine the particular Soviet Union thought about money convertibility. One particular reason was the belief that currency convertibility provides in regards to a market-oriented overall economy. Simply market-oriented current economic climate is a situation where the marketplaces plays the role f invisible hand writing how production and distribution of resources are accomplished bringing the best efficiency in terms of creation. Usually the market dictates what should be produced as well as for who. Additionally requirements and supply the forces of the markets are in charge of sharing development and consumption.
Another drive for currency convertibility was due to its capacity to bring competitiveness in the market. This is because new information relating to new habits of requirements, development of new solutions would help customers make decisions on what they need hence compelling markets to provide better and high quality products. The issue of money convertibility was fronted since monopolies responded badly to market signals and the only way to reverse this is to have in place a measure such as money convertibility.
Secondly, the desire f the USSR to encourage an positioning of its prices start of the whole world in terms of goods and services provided which are usually at the mercy of deviations. Lastly, the concept was adopted because of its ability to offer a catalyst for the region to build up export markets. With this comes the good thing about providing a country's people with goods and services that could not be otherwise stated in the united states. This helped in making certain the citizens savored better living criteria hence their well being.
In Asia it will probably be worth noting that, a number of countries such as Japan, Hong Kong as well as Singapore have followed the idea of currency convertibility to a varying degree. On a number of occasions, China throughout the People's Standard bank of China has hinted lots of times that it is likely to create a new global money as well as making the Chinese language Yuan convertible. Worries of the fact that if the united states dollar is kept to be the de facto global currency, then the issue of global trade imbalances will be made worse. Despite this there are some countries in the Asian region for illustration China which have not yet allowed free purchasing and selling of currency without the agreement from the central loan provider. On the other hand, virtually all countries in Europe have encouraged money convertibility rendering it easier for foreign corporations to conduct business.
Now i want to embark on critically examining the issues that'll be faced by international firm conducting business in a country where the money is non-convertible. By classification, a non-convertible money is the currency that cannot be quickly and conveniently exchanged for another money usually due to the restriction help with by the government like in the case of China. Due to the simple reason that the government has constrained easy and quicker purchase and sell of the neighborhood currency, it'll then be very difficult for a multinational organizations to repatriate the made profits back again to their countries of origin. This can be explained the following, since the home currency is not sold or purchased everywhere, it'll be pointless for the multinational firms to send such monies to their countries given that they will never be converted back again to the local currency of the receiving country. However, to counter these concern most multinational organizations that operate in countries that limit convertibility of currencies vacation resort to barter in goods and export the same back to their home countries.
Having at heart a multinational firm at onetime will require additional capital which there are several avenues to secure such capitals, the mere fact that the local currency or for example the currency of the variety country not being convertible boundaries the various resources of capital. This leaves the corporation with the option of borrowing money from the neighborhood financial institutions. In situations where the federal through the central loan provider adjusts the interest rates, then it is much more likely that the source of capital will be costly for the corporations.
Another serious problem which will be faced with a multinational organization that works in a country whose money is not convertible relates to expensive or complications in importation. Since the host country local currency can't be bought or sold conveniently, the multinational company is left without choice other than participating in barter trade when there exists need for it to import some important materials. On the same type of thinking, it isn't possible for the corporation to take benefit of currency understanding. Indeed, it's possible that whenever currencies are convertible, then it is possible that at onetime such money will gain value over other rendering it possible for the organization to transfer some important materials at relatively cheaper prices. In the same way the corporation is denied the opportunity earn international money while participating in importation and exportation of its products as well as services.
Because a host country money is not convertible, the multinational organization is restricted to engage running a business within the boundaries of the host countries. That is a negative force aimed at thwarting the work of any given corporation to move global. For instance if Kahawa Ltd is to develop its operations to the neighboring countries by exporting its products and services to such countries like Hong Kong, Malaysia, India among others it must extensively engage in barter trade. This is a cumbersome exercise characterized with problems in establishing the true costs of goods and services without considering the monetary values.
Despite these disadvantages, there are some few benefits associated with no-convertible currencies. For instance, the number country might get away from the problem of currency problems in situations where international buyers were to widely hold domestic money financial instruments. This can be explained by the actual fact that when international traders are cornered with liquidity issues, they might resort to market domestic currency investments thereby exuberating pressure on the exchange rate to depreciate further which will not be best for both the host country and the multinational organization. Similarly non-convertible currency compels the multinational corporation to encourage exportation of the number countries products, which later helps the sponsor country expand economically, reduce poverty as well as curbing the high rates of unemployment. With each one of these, the corporation stands a potential for being in the good books with the government, which in the end can be used as basics to offer it some bonuses.
Inflation, interest levels and exchange rates
The term inflation has been thought of as a way of measuring the price stableness throughout the market. You will discover two broad types of inflation, demand side and supply aspect inflation. Countries exercising an open current economic climate mentioned that inflation result from local as well as external factors, which depends upon increase in the world product prices or exchange rate changes and the influence of exchange rates towards inflation, based on the regulations of the united states in question towards exchange rates. Various studies have been conducted and the conclusions attained indicate that indeed inflation specifically domestic inflation and exchange rates impact each other. Interestingly, a study done in 1983 by Rana indicated that changes in trade rates do not have an effect on the inflation rate of ASEAN apart from Thailand. In a study completed by Achsani, et. al. , 2010, they concluded that there's a strong connection between inflation and real exchange rate in Parts of asia but there is no such romance in the EU and north America. Similarly, the financial meltdown that hit Parts of asia seem to truly have a serious local impact since it possessed no impact to European union and THE UNITED STATES. To them this indicated that it's important to manage inflation rates among the economic indication.
For example, if Singapore and Hong Kong are believed for illustration if it happens that Singapore has less inflation rate in comparison to Hong Kong, Multinational Organization such as Kahawa Ltd operating in Asia might be lured to acquire in Singapore rather than Hong Kong money even though the firm functions in both of these countries. Nonetheless, a forex will depreciate or appreciate at a percentage rate that is near to the amount by which it inflation rate exceed than that of Hong Kong. This makes the Hong Kong buck weaker compared to Singaporean money hence engaging the involved people to pay more and more Hong Kong dollars to pay back interest denominated in Singaporean us dollars.
International capital market segments 1000
Impact of multinational operations on various financial management issues 1000
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