Question

Please no copy and paste!!!

MNEs try to maximize profits. How could MNEs maximize profits and minimize profit volatility at the same time?

Answer 1

Profit maximization- It is the primary motive and goal pf Multi national enterprises. Companies work for a common goal that is profit.

Companies maximize their profits by following strategies:

• Companies increase profit by increasing their revenues and decreasing the cost of goods sold and expenditures.
• Companies try to minimize the loss by increasing their market shares.
• Companies differentiate themselves from their competitors by product or service differentiation.
• Companies reinvest their earnings for further expansion and growth purpose so that revenue and profit can be increased.
• Companies should make good marketing strategies of advertisements and promotions so that number of customer may increase and profit may increase.

Minimizing volatility in profit- Volatility is the fluctuation and uncertainty in profits. These are the following strategies to minimize volatility in profit:

• Companies should adopt hedging strategies with the help of derivatives contracts (Forward and futures) so that company can hedge against the losses and can lock in the future profits.
• Companies' profits are affected by exchange rate risk because they trade globally so they should try to reduce the exchange rate risk by entering into currency forward, futures and options contract.