Question

If you are the CFO of a multinational company. What steps could you take to minimize international risk? Describe how cash flows are used to minimize political risk.

Answer 1

there are different types of risks when a company enters into the international market. they could be related to political, exchange rate, logistics etc.

I would be looking for minimising the exchange rate with through different types of hedging contract. I would always look for proactive management of various types of volatility in the exchange rates so that our profits are not impacted to a larger extent.

I would also like to gain an optimum control over the logistics and the supply chain management of our company into the international field so that I can have an upper hand while deciding the pricing strategy as well as it will help to increase the margin of profit.

Political risks can be mitigated through use of cash flow because of their liquidity as they can be very liquid to carry out any kind of transaction to occur in international market as management of cash flow would be very helpful in regaining an upper hand while management of political risks as it requires a lot of negotiable skills and exchange of cash.