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MNCs: Risks and International Factors

1. Multinational companies (MNCs) operate internationally and draw some of their revenue and profits from foreign markets. 2. MNCs face various international factors like foreign ownership, multinational capital markets, accounting, and foreign exchange risk. 3. Risks to MNCs include exchange rate risk, accounting exposure, and economic and political risks in foreign countries where they operate.

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Yopie Niel
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13 views11 pages

MNCs: Risks and International Factors

1. Multinational companies (MNCs) operate internationally and draw some of their revenue and profits from foreign markets. 2. MNCs face various international factors like foreign ownership, multinational capital markets, accounting, and foreign exchange risk. 3. Risks to MNCs include exchange rate risk, accounting exposure, and economic and political risks in foreign countries where they operate.

Uploaded by

Yopie Niel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Class 14

International
Managerial Finance
The MNCs and Its Environment
 Multinational Companies (MNCs)

Firms that have international assets and


operations in foreign markets and draw part
of their total revenue and profits from such
markets.
The MNCs and Its Environment

International factors
Foreign ownership

Multinational capital markets

Multinational accounting

Foreign exchange risk


The MNCs and Its Environment
 Emerging trading blocs

 NAFTA

 European Union

 European Open Market

 GATT (General Agreement on Tariffs and Trade)

 Legal Form of Business

 Taxes
The MNCs and Its Environment
 Financial Markets

 Euromarket

The Euromarket is a large single market comprised of all


member countries, allowing for more efficient trade and
the centralization of monetary policy through the ECB. The
Euromarket is considered a major finance source for
international trade, through the money market or
eurocurrency, eurocredit and eurobonds.
RISK

 Exchange rate risk

the risk caused by varying exchange rate between


two currencies.
 Foreign exchange rates

the value of two currencies with respect to each


other.
RISK

 Relationship among currencies


Floating relationship

Fixed ( or semifixed ) relationship

Spot exchange rate

Forward exchange rate


RISK
 What Causes Interest rate to change?

 Economic factors

 Political factors

 Differing inflation rate between two countries.

 A firm that borrows money in a development country faces

the possibility of a double penalty due to inflation. Since


many of the loans have floating interest rates, inflation will
increase the interest rates on the loan as well as affect the
exchange rates of the currencies.
RISK
 Accounting exposure

the risk resulting from the effects of changes in foreign


exchange rates on the translated value of a firm’s financial
statement accounts denominated in a given foreign currency.
 Economic Exposure.

The risk resulting from the effects of changes in foreign


exchange rates on the firm’s value.
RISK
 Political Risk

the potential discontinuity or seizure of an MNCs operations


in a host country due to the host’s implementation of specific
rules and regulations.
 Macro political risk

 Micro political risk


1. Define derivatives as financial instrument!
2. What are the different characteristics of futures and
options
3. What are the margins of futures transactions
4. Define types of options
5. Define the 3 (three) investment activities
6. Define 2 (two) main reasons for a company to become
MNC
7. What are the international factors of an MNC?
8. Define the risks and exposures of an MNC
9. What caused the low foreign direct investment in
Indonesia?
10. What are the lessons that can we learn from MEA and EU?

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