Interstate regulation of monetary and financial transactions...

Interstate regulation of monetary and financial operations

A whole range of issues of regulation of monetary and financial relations is regulated by interstate agreements, in particular, under the auspices of the International Monetary Fund (IMF), and also within the framework of the European Monetary System. This includes issues of currency convertibility, ways to fix exchange rates, etc. In its practical activities, the financial manager of an international company must also take into account these regulatory elements that affect the formation of exchange rates and the degree of currency risks in the performance of certain operations.

Globalization of markets

Active activity of transnational and multinational (ie international) companies, which was defined as economic globalization, enlarged the size (capacity) of the markets and significantly increased competition, which could not but increase the level of entrepreneurial risk. In particular, the multinational corporation is especially exposed to currency and interest risks. These risks need to be rationally managed if the multinational company is going to compete successfully and effectively develop in the globalized world economic system.

Tax specifics of national economies

Features of financial management of international companies are largely determined by the specifics of the tax systems of foreign countries. First, the tax burden in different countries is different but of its own severity. Secondly, in conditions of insufficiently perfect tax systems, financial managers of international companies can successfully carry out arbitrage operations with corresponding (if they exist) tax asymmetries. Thirdly, some countries impose an unequal tax rate on domestic and foreign companies, which should also be taken into account by the financial managers of international companies.

Agent problem in TNCs

In any corporation between the owners of the company (shareholders) and their agents (managers) who must act solely in the interests of the former, conflict situations are likely, since there are many things that managers can do, pursuing only their personal interests. They, for example, can pursue policies that expose them (and not the company) in the best light and guarantee their promotion. Unfair managers can make decisions that promote personal enrichment at the company's expense. Managers may be more interested in expensive privileges, such as wealthy cabinets, luxury cars and membership in prestigious clubs than reducing operating and other costs. They can shy away from effective (to achieve company goals) decisions, if they have at least a minimal element of risk for their personal career status. Some of them can join, defending their personal interests, in conflicts, creating tension within the company, or in the market, causing it economic damage.

As the owners of most TNCs are largely diversified, the degree of separation of ownership and management in this case is even higher. This allows managers, taking managerial decisions, to act in their own interests (they mean their own revenues, authority, self-esteem, prestige, etc.), which can lead to a decrease in TNK shareholders' wealth.

Often it is extremely difficult to determine whether a subsidiary's manager is operating in the interests of the overall corporate goal (increasing the value of all TNCs as a whole) or his decisions are aimed at increasing the value of the branch at the expense of the parent company. Obviously, the necessary control over the activity of the branch from the side of the parent company requires significant expenses, so-called agency costs, exceeding the agency costs of national companies.

National cultural differences

Some categories considered in financial management can be subjectively evaluated by representatives of different nationalities (countries). This, for example, is a greater or lesser risk appetite, affecting the evaluation of the same projects by managers of companies of different countries; different importance given to different sources of financing of companies' activities. This, finally, is a different interpretation of the concept of benefit, which results in the use by managers of different countries of different criteria in making financial or investment decisions.

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