Exchange Rate Determinants
QUESTION ONE
WHY MULTINATIONALS FIRMS MUST ASSESS THE BUSINESS ENVIRONMENT OF COUNTRIES THEY OPERATE AND INTEND TO OPERATE IN.
Multinational Corporation/Firm is a business that produces or distributes products or services in one or more foreign countries by establishing a branch or affiliate there. These multinational Corporations operate in a complex business environment. Cultural, social, economic, political and technological systems vary from country to country. In order to operate successfully, a multinational corporation needs a basic understanding and appreciation of the foreign business environment (Dowling B T & Mc Dougal M 2010, Business Concepts for English Practice).
Constant assessment of the business environment of countries where multinational firms already operate in and where they are considering investing in is most important because of the advantages that come from these assessments. These importances can be looked at by analysing each risk that they mitigate by the assessment process, which can be done using country risk analysis. This is the assessment of the potential risks and rewards associated with making investments and doing business in a country. Country risk analysis encompasses two major factors. These are political and economical.
With political analysis, the multinational firms assessment of the political factors underlying in the countries that they are either already operating in or are intending to invest in. In this aspect, these multinationals are able to measure and foretell the risk that comes about due to economic unsoundness, low levels of political stability, fiscal irresponsibility, monetary irresponsibility, capital flight, resource base or availability, and subjective issues.
First of all, the country’s degree of economic soundness will help ascertain its suitability or buoyance for multinational firms. This is due to the inter-linkage between economic soundness and political decisions. In general, it has been
WHY MULTINATIONALS FIRMS MUST ASSESS THE BUSINESS ENVIRONMENT OF COUNTRIES THEY OPERATE AND INTEND TO OPERATE IN.
Multinational Corporation/Firm is a business that produces or distributes products or services in one or more foreign countries by establishing a branch or affiliate there. These multinational Corporations operate in a complex business environment. Cultural, social, economic, political and technological systems vary from country to country. In order to operate successfully, a multinational corporation needs a basic understanding and appreciation of the foreign business environment (Dowling B T & Mc Dougal M 2010, Business Concepts for English Practice).
Constant assessment of the business environment of countries where multinational firms already operate in and where they are considering investing in is most important because of the advantages that come from these assessments. These importances can be looked at by analysing each risk that they mitigate by the assessment process, which can be done using country risk analysis. This is the assessment of the potential risks and rewards associated with making investments and doing business in a country. Country risk analysis encompasses two major factors. These are political and economical.
With political analysis, the multinational firms assessment of the political factors underlying in the countries that they are either already operating in or are intending to invest in. In this aspect, these multinationals are able to measure and foretell the risk that comes about due to economic unsoundness, low levels of political stability, fiscal irresponsibility, monetary irresponsibility, capital flight, resource base or availability, and subjective issues.
First of all, the country’s degree of economic soundness will help ascertain its suitability or buoyance for multinational firms. This is due to the inter-linkage between economic soundness and political decisions. In general, it has been
References: Hellstrom J 2012, Multinational Finance: “Foreign Direct Investments”, Hyland House, Melbourne. Mikic M 1994, International trade: understanding the UK economy, 4th edn. London. Sundaram AK and Black JS 2006, The International Business Environment: Text and Cases, Prentice hall, New Delhi. Van Gestel T & Baesons B 2009, Credit Risk Management, Oxford University Press. Ritter LS & Silber WL 1991, Principles of Money, Banking and Financial Markets, Macmillan, London.