Question

Just like domestic financial management, the goal of multinational finance is also to maximize the shareholder’s wealth. Can you think of any areas where the goals may differ between domestic and multinational finance?

Answer 1

Goals are differing between the domestic and the multinational Finance as follows-

A. Currency risk- Domestic finance is generally considered with the domestic currency whereas if there is a multinational Finance involved, then there are risk related to investing into different countries and managing the interest in a better way by reducing the risk of multiple currencies.

B. There are difference in rules and regulations and taxation regimes in different countries associated with investment so rate of return will be different due to different tax regimes.

C. There will be risk related to different monetary policies which can be changed by the central bank's of different countries in multinational Finance and investor will have to protect exposure in various countries because he will be exposed to different interest rates.

D. there will also be a different political risk involved because there will be a place of instability of political reasons involved with investment into different countries so it is better to manage micro risk in an efficient and effective manner

E. cost of capital associated with investment in different countries are different so investor should be trying to get exposed to such countries where the cost of capital is lower in multinational Finance.

Hence it can be said that multinational Finance is related towards engaging with multiple country and higher degree of market risk and it will also offering with the higher diversification.