Question

1. Can you think of a reason why multinational corporations might be riskier than companies that operate on the domestic market only. Explain briefly. (Hint: there are at least two good reasons, but you only need to come up with one)

2. Come up with a reason why, by going multinational, most corporations can reduce their total business risk. Can you think of a food or agricultural-sector company whose international operations clearly have such an effect?

Answer 1

1.Currency Risk

At the top of the list is the management of currency risks. A domestic company only has to worry about domestic currency

When you have an operation in another country, cash inflows and outflows are often handled in the local currency. Unfortunately, the conversion rates are constantly changing. A multinational finance manager tries to cover these risks by using currency hedges. This might involve buying futures on the currency, selling options, or investing in some type of derivatives. Thus it become complicated.

Different Tax Regulations

After settling the currency issues, legal and tax differences must be addressed. The tax laws on corporations are different for every country. Where a domestic finance manager only has to learn one set of regulations for taxes, wheras mutinational corp. has to keep watch on different tax laws of different countries.

2.By going multinationals most corp reduce their business risk as they expand their business in different countries.If in one country they have to face loss then in another country they can earn profit due to that county's business environement.Thus loss of one business of one country can be set off from the profit of business of other country.

Yes,in food & agricultural industries which are operating internationally have real impact of this on it.If their production in not liked in one country then it may be liked by consumers of other countries as different countries have different taste ,different food habits,different cliamte,different environment .These all impact the food & agricultural industries.operating multinationally.