Fundamentals of Financial Management (Concise 6th Edition)

538 Part 6 Working Capital Management, Forecasting, and Multinational Financial Management

17-2 MULTINATIONAL VERSUS DOMESTIC

FINANCIAL MANAGEMENT

In theory, the concepts and procedures discussed in the! rst 16 chapters are valid for

both domestic and multinational operations. However, some additional factors need

to be considered when! rms operate globally. Five of these factors are listed here:

1. Different currency denominations. Cash " ows in various parts of a multinational
   corporate system will be denominated in different currencies. Hence, exchange
   rates must be included in all! nancial analyses.


2. Political risk. Nations are free to place constraints on the transfer or use of cor-
   porate resources, and they can change regulations and tax rules at any time.
   They can even expropriate assets within their boundaries. Therefore, political
   risks can take on many forms. Of course, political risks are present for compa-
   nies operating in a single country. But for multinational! rms, political risks
   exist in various forms from country to country; and they must be addressed
   explicitly in any! nancial analysis.

Sources: Marilyn Ibarra and Jennifer Koncz, “Direct Investment Positions for 2006: Country and Industry De-

tail,” Survey of Current Business, July 2007, pp. 21–36; Elena L. Nguyen, “The International Investment Position

of the United States at Yearend 2002,” Survey of Current Business, July 2003, pp. 12–21; Patricia E. Abaroa, “The

International Investment Position of the United States at Yearend 2003,” Survey of Current Business, July 2004,

pp. 30–39; and Bureau of Economic Analysis, “U.S. Net International Investment Position at Yearend 2004,”

BEA News, June 30, 2005.

Direct Investment Positions on a Current-Cost Basis, 1982–2006

F I G U R E 1 7! 1

0

1982 1986 1990 1994 1998 2002 2006

500

1,000

1,500

2,000

2,500

3,000

$ Billions

U.S. Direct Investment Abroad

Foreign Direct Investment in U.S.

SEL

F^ TEST What is a multinational corporation?

Why do companies “go global”?

Discuss the following statement: The U.S. is not immune to the in! uence of

foreign corporations over U.S. economic and political policies.