Table of contents Content Executive summary…………………………………………..……………………..

……2 Introduction…… …
ong run ……….…………………..……………………..6 Advantages taking by MNCs through long term …..………….………………
s……..………………………………..…………………….9 International cash management……………………………………………………….…9 Credit
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EXECUTIVE SUMMARY MNCs are the coprations which tarde in more than one countries
.msc operates in two types of structure that’s is startegic business units and nat
rix organization.MNCs facemany risk major are the ecnomic,tarslation and tarsfor
mation.and also see the currncy flactuation rsik.currncy falctuation is effected
by many factors diccued in the projcet MNCs take short and long term decision o
n the basis of currncy falctuation nad excahnge rate.they get thes fanice throug
h the debt and equity resoureces.they take advantages throug heding .and see the
payeble and recivable desion on these long term and short term.MNCs take advant
age throut see spot nad futre contarct
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INTRODUCTION Multinational Corporation (MNCS) A company that does business in mo
re than one country is called an MNCS. A corporation that maintains assets and/o
r operations in more than one country. For example, raw materials are in one cou
ntry, a product s manufacture in a second country, and sale in a third country.
A company manages its operations from a main office in its home country. There a
re four categories of MNCS: (1) Multinational, decentralized firm with strong ho
me country presence, (2) global, centralized firm that acquires cost advantage t
hrough centralized production wherever cheaper resources are available, (3) Inte
rnational, firm that builds on the parent firm s technology or R&D, or (4) Trans
national, firm that combines the previous three approaches. MNCS Structure There
are two types of structure of MNCs: 1. Strategic Business Units (SBU) 2. Matrix
organizations Strategic Business Units (SBU) Worldwide Area Structure and Strat
egic Business Units (SBU) are more popular forms of organizational structure in
big corporations. MNCs organization structure represent to formal reporting to o
rganization. Independent organizations with SBUs function has a separate income
statement and balance sheet MNCSs in their beginning of venture send there emplo
yed in certain regions of the world where they have started or try to start busi
ness to supervise the functions in those regions but this cause conflicts betwee
n the functional heads and the heads of the international division. The Authorit
ies in Sub • Span of control 3
Control given to the maximum number of subordinates a manager can effectively su
pervise. • A narrow span (tall organization) of control means lesser or fewer numb
er of people. While a narrow span of control includes many managers and centrali
zed decision making and they report to a manager • A wide span (flat organization)
Means more subordinates reporting to one manager. Wide span include fewer manag
ers and more delegation of authority. The authority is delegated determines cent
ralization and decentralization. Matrix Organizations In this type of structure
the subordinate report to two bosses. It is very effective and has no conflict i
n the reporting. Customer need are identify and products and services are delive
r and through a network of specialists. Chapter 6: Organizational Structure of M
NCSs Risks faced by MNCs The major risk faces by MNCs are 1. economic risk 2. tr
anslation risk 3. transaction risk Some other types of risk are also there 4. Ex
change Rate Risk. 5. country risk 6. sovereign risk 7. transfer risk 8. politica
l risk 9. financial risk 10. operating risk http://www.scribd.com/doc/44301879/1
6-MNCS-Risk-Management-5 Currency fluctuation 4
The difference or change between the value of currency between one country and a
nother when issued .this process is called currency fluctuation. currency fluctu
ation occurs on daily basis and impacts the relative rate of exchange between va
rious currencies on a continual basis on the results of foreign currency trading
activity for the day. It is currency fluctuations that investors in currency ex
change deals look to closely in order to generate a profit from their investment
s. Factors that effect currency fluctuation There are many reason of currency fl
uctuation 1. 1:the changes in economic position (indices like GNP gross national
product) 2. macroeconomics policies(for the long term) 3. changes in interest r
ate 4. Speculation 5. Currencies fluctuation 6. Supply-demand factor on currenci
es. 7. consumer index 8. Foreign investment 9. Inflations rate 10. National Inco
me or Gross National Income (GNI) When rise in income occurs people spend more m
oney increase the demand for currency .this demand will increase the demand for
local currency that is it appreciate conversely depreciate foreign currency Body
Long term decisions by MNCs MNCs invest in long term projects; for that they ne
ed long term finance .Once the finance decision has been made MNCS look for the
possible sources of providing loans or of personal money (equity)and also see ri
sks the link with these financing decisions. SOURCE OF FINACE They get this fina
nce from the equity or debt Sources of equity 5
1. Personal savings Personal savings 2. 3. Friends and family members Partners P
artners
4. Corporations 5. Venture capital companies Venture capital companies Source of
debt 1. Commercial 2. Trade credit 3. Equipment suppliers 4. Commercial finance
companies 5. Saving and loan 6. Asset based lenders MNCSs take equity funding f
rom the source in their local country and engage in debt financing in foreign co
untries. For the debt they have to pay the interest and face the fluctuation in
e the exchange rate of the foreign currency .If the borrowed currency appreciate
s M NC will need more funds to cover the coupon or principal payments MNCs Types
of decision MNCs have 5 types of long term decision which MNCs take 1. Foreign
Direct Investment 2. Investment Cash Flows and Decisions 3. Capital Structure 4.
Long-Term Debt 5. Equity Capital Foreign Direct Investment (FDI) is the shift o
f assets, administrative, and technical assets from home country to a foreign co
untry .MNCs may have totally a personal financing resulting to owned the subsidi
ary or may not have totally finance for that reason they do joint venture with t
he foreign country. MNCs taking the fdi decision face the exchange rate risk fin
ancial and Inflation
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Investment Cash Flows and Decisions When taking long term by investment decision
MNCs in subsidiaries they must risk of international cash flows and see the tax
es and also see the risk if cash flow will b blocked Capital Structure MNCs are
located in different regions .may have low bugged for long term financing .Part
of this might be explained that MNCSs based in different countries and regions m
ay have access to currencies and markets, resulting in variances in capital stru
ctures for these MNCSs Long-Term Debt MNCs while taking long term decision take
the debt from several other countries in the form of international bonds, foreig
n bond or through the euro bonds . Equity Capital For long term decision in equi
ty the MNCSs raise personal finance in such away that they have the parents stoc
ks and those are distributed internationally which is owned by different shareho
lder in different countries (Lawrence j.gitman, International Ma Chapter 16 mate
rial Finance, managerial financing) Advantages taking by MNCs through long term
There is a weak relationship between the stock returns of firms and exchange rat
e fluctuations exchange risk is important for corporations and that many corpora
tions are working to hedge the risk. Exchange rate exposure by examining whether
the ability of US multinational firms to construct operational hedges 1: Operat
ional hedges operational hedges Are more effective in managing long-run.it is be
st for the competitive position 2: financial hedges Financial hedge means the us
e of currency derivatives on foreign exchange exposure .it is more valuable for
managing short-run exposures. The "breadth” is amount of a set of connections stre
tch across many foreign countries and the “depth" is the amount set of connections
awareness in a few foreign countries. the collision of breath and depth on MNCS
s exchange risk .It is found that MNCSs with
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greater set of connections breadth are less bare to currency risk whereas firms
with more highly determined set of connections greater depth are more exposed. (
Christos Pantzalis.Palgrave. P5) Payables and receivable Gain and loss are due t
o the difference between the exchange rates at the date of purchase and at the d
ate of payment. At the time of transaction Fluctuations in exchange rate occurs
usually at the time payment for the goods or services or at the time of buying o
r purchase of the goods. If exchange rate price of goods is lower than it is pro
fitable for company but the exchange rate at time of payment is high will bear l
oss. to prevent losses from foreign currency devaluations. Exporters or companie
s prefer to pay their receivables in U. S dollars. This creates loss due to diff
erent between us dollar amount in exchange rate at the time of the closing of th
e export transaction and the U. S. dollars similarly upon exchange of the foreig
n currency received in settlement of the open account. Company trading in intern
ational markets can accept the future UN wanted changes in foreign exchange by c
reating an offsetting liability or asset in the foreign currency at the time to
receive or pay. The companies can hedge by opening bank accounts in foreign curr
encies or even with a local bank. Payable in foreign currency in the future iit
is necessary to have amount in same currency to paying it can b done by purchasi
ng the same currency and placed in the bank accounts so at time of payment amoun
t is available. This transaction is commonly known as a "hedge." Its purpose is
to minimize the exchange risk by securing forward cover for the export transacti
on. The forward exchange market can offer protection against this type of risk a
s well. (Author(s): Donatello M. RosignoliSource: Lawyer of the Americas,Publish
ed by: University of Miami Inter-American Law ReviewStable ) Short term MNCs dec
isions MNCS firms have right to use to accounts payable, accruals, non-bank and
bank sources of short-term funds and have right to use the local market for fund
ing. the subsidiary’s borrowing and lending opportunities are often greater since
it can rely on the potential backing of the parent company.
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Borrowing in local markets where only one currency and a nominal interest rate i
s involved both nominal and effective interest rates. The currency forecasting i
s done for investment and borrowing decisions International cash management, The
MNCS can protect from currency fluctuation or exchange rate risk by hedging by
certain adjustments in cash and its operations. Credit and Inventory Management
MNCs can take advantage buy giving attractive credit term to its customers Inven
tory management, Advantage form currency fluctuations 1. Exchange rate
MNCS take advantage through the exchange rate also called forex stands .Forex fu
tures allow traders to buy or sell currency at arranged date and determined exch
ange rate. Chart formation indicators are the source from where the trends come.
Spreads have a tendency to trend much and interest depend on the country future
s contracts when the trading u buy or sell the currency for purchasing of goods
Spot In spot contract the when you pay u get higher money the amount when some p
ay to u.in spot there are trading information trading price. This give advantage
is that u trade against the house Future contract And according to future contr
act, the amount paid or gain is same with the interested also provide informatio
n on statics. It also provide benefit from currency fluctuation .through future
contract u do repair of currency.
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MNCs don’t hold out for big income. They always see material which can come on han
ds MNCSs make relations outside with peoples who are potential future contract .
MNCSs take advantage through the exchange rate and increase the profit through t
he fluctuation
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CONCLUSION MNCs take advantages through the currency fluctuation through the exc
hange rate in the term of expenses when the currency appreciate MNCSs face loss
and when depreciate MNCs gains, and when depreciate MNCSs in the term of paying
face loss and appreciate MNCs face gain. MNCSs gain through diversification they
have negative correlation one currency gain and other loss.MNCs still can gain
profit from one country but this diversification also cause risk .MNCs payable d
epend on their assets or if the y don’t have they take from the money market or fr
om financial institution. MNCs with undisclosed exposure to currency risk if it
is in depth. And are more expose to risk if MCs are highly concentrated
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REFERENCES 1. Palgrave Macmillan Journals, (2001), Christos Pantzalis, Betty J.
Simkins, Paul A. Laux. Journal of International Business Studies, Vol. 32, No. 4
, pp. 793-812 2. University of Miami Inter-American Law Review Stable 1971, Lawy
er of the Americas, (Donatello M. Rosignoli, Vol. 3, No. 3 (Oct., 1971), pp. 446
-463 3. http://financial-dictionary.thefreedictionary.com/Multinational+company
4. http://businessdictionary.com/definition/multinational-corporation-MNCS.html
5. http://icmrindia.org/courseware/Management%20of%20Multinational %20Corporatio
ns/MNCSs-DS6.htm 6. http://wisegeek.com/what-are-currency-fluctuations.htm 7. ht
tp://hubpages.com/hub/What-causes-Currency-Fluctuations 8. (Operational Hedges a
nd the Foreign Exchange Exposure of U.S. Multinational Corporations 9. http://sc
ribd.com/doc/44301879/16-MNCS-Risk-Management-5 10. http://essays.se/essay/ef56d
482ec/
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