Factors that Distinguish Multinational Financial Management
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Added on  2023/02/06
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This document explores the factors that distinguish multinational financial management from financial management as practiced by a purely domestic firm. It discusses currency exchange risk, raising capital risk, legal and tax environment, foreign political risks, and financial reporting differences.
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Faculty of Business and Communication SMP20403 INTERNATIONAL FINANCE SEMESTER 1, 2022/2023 INDIVIDUAL ASSIGNMENT Prepared for: DR HUSSEN BIN NASIR Prepared by: LOONG YEE WEN (201240311)
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1.FACTORSTHATDISTINGUISHMULTINATIONALFINANCIAL MANAGEMENT FROM FINANCIAL MANAGEMENT AS PRACTICED BY A PURELY DOMESTIC FIRM. Financial management assists in determining a firm's funding commitments, which aids in the development and execution of wealth management alternatives. Budgeting assists businesses in acquiring finances and improving their operations. High currency exchange risk.The handling of exchange rates is the top of the priority list. A local corporation simply needs to be concerned with US currency. If you operate a foreign operation, outflows and inflows of cash are frequently managed with in domestic exchange rate. Regrettably, exchange rates fluctuate all the time. If runningoperations in Japan, for example, the yen is the currencies. Raising capital risk.If a domestic business owner requires more outside equity money, he could approach existing shareholders or submit the proper legal procedures and make an offer to other possible investors. It might not be so simple in a different place. The rules will be changed. Shareholders' rights could be strengthened. The cost of capital may rise. All of these obstacles complicate doing business in other countries. Legal and tax environment.Following the resolution of currency difficulties, legal and tax disparities must be resolved. Each nation has its own set of corporate tax regulations. Previously, a local management accountant only had to master one set of financial rules; now, he must comprehend the taxation laws of multiple nations. Foreign political risks.A local firm owner does not need to be concerned about the state taking his property if he fails to pay his taxes. In some rest of the world, the government may determine that you are producing too much income and seize your property as well as take over your business. Growing a popular and profitable corporation into a worldwide enterprise necessitates an entirely new finance managerial style. International businesses must begin with typical money management techniques and then add additional tax rules, financial restrictions, and currencies volatility hazards.
Financial Reporting differences.Corporations in the United States adhere to Accounting Standards, although corporations in other nations might or might not. This can imply that a similar type of analysis could've been produced separately and easily misinterpreted. A local accounting leader must know where the report came about and how to evaluate it.
2.IDENTIFY FOR CORPORATIONS TO BUILD MANUFACTURING PLANTS ABROAD WHEN THEY CAN BUILD THEM AT HOME COUNTRY. There are few corporations that are build manufacturing plants abroad when they can build them at home country. The corporations such as Apple, IBM, and Cisco Systems which involving in overseas manufacturing and electronic, while Nike is involving in overseas manufacturing and sports apparel, and Wal-Mart that is involving in manufacturing and shopping. ThebrandAppleoriginfromLosAltos,California,UnitedStatesand it’smanufacturing locations in China, Czech Republic, Malaysia, Thailand, and South Korea. Despite their location in several nations, each one of these production plants are owned just by two firms: Foxconn and Pegatron. The brand IBM origin from Endicott, New York, United States, and it’s manufacturing location in Singapore. While the brand Cisco System origin from San Jose, California, United States, and it’s manufacturing locations in Korea, China, Malaysia, Taiwan, and Singapore. ThebrandNikeoriginfromBeaverton,Oregonanditsmanufacturing locations in China, Indonesia and Vietnam. Last but not least, the brand Wal-Mart is origin from Rogers, Arkansas. But supplier for Wal-Mart is in the United Kingdom, Canada, China, Mexico, Taiwan, Hong Kong, France, and other countries. One of the reasons that corporations build manufacturing plants abroad rather than in their home country because they can take advantage of looser regulation. Most advanced countries have extensive regulations governing safe operation, ecological safeguards, labour regulations, and other issues that can add considerable unnecessary costs toward doing businesses there. Firms relocate production to countries with laxer standards could save time, expense, and legal responsibility as these expenses rise. The next one is moving closer to raw materials. In certain circumstances, instead of transporting raw resources to be handled abroad, it may make logical sense to situate a production facility that uses a significant amount of large, expensive raw resources close where they have been accessible. This might be to reduce expense or to prevent disruptions in supply chains by locating the plant nearby to the distributors and not relying on things going smoothly with climate, borders, and so on.