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CFO Fundamentals: Your Quick Guide to Internal Controls, Financial Reporting, IFRS, Web 2.0, Cloud Computing, and More by ALLISON I. SHIM, JOEL G. SIEGEL, JAE K. SHIM

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CHAPTER TWENTY-NINE

Financial Management of Multinational Corporations

Many companies are multinational corporations (MNCs) that have significant foreign operations and derive a high percentage of their sales from overseas. The CFOs of MNCs need to understand the complexities of international finance to make sound financial and investment decisions. International finance involves consideration of managing working capital, financing the business, control of foreign exchange and political risks, and foreign direct investments. Most important, the CFO has to consider the value of the U.S. dollar relative to the value of the currency of the foreign country in which business activities are being conducted. Currency exchange rates may materially affect receivables and payables as well as imports and exports of the U.S. company in its multinational operations. The effect is more pronounced with increasing activities abroad.

FINANCIAL MANAGEMENT ESSENTIALS FOR MNCs

Financial management of MNCs has unique characteristics. They are:

  • Multiple-currency problem. Sales revenues may be collected in one currency, assets denominated in another, and profits measured in a third.
  • Various legal, institutional, and economic constraints. There are variations in such things as tax laws, labor practices, balance-of-payment policies, and government controls with respect to the types and sizes of investments, types and amount of capital raised, and repatriation of profits.
  • Internal control problem. When ...

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