Risk of International Companies

Posted: August 26th, 2021

Risk of International Companies

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Risk of International Companies

Question 1- Complexity of Managing Multinational Corporations

            International companies encounter additional risks and opportunities when engaging in global markets that hinder corporations from maintaining reliable and constant revenue. The significant risks in international finance are political and foreign exchange risks (Filippou et al., 2018). Foreign exchange risk results from currency fluctuations mainly from the domestic currency appreciating relative to the foreign currency leading to variations in the value of an investment due to exchange rate fluctuations (Shapiro & Hanouna, 2019). Additionally, when a foreign currency depreciates against the domestic currency, the profits realized will decline due to currency exchange between local and foreign currency. Therefore, volatility on exchange rates affects international business due to gain or loss in exchange rates market, thereby affecting sales revenue and income. However, the risk can be managed through hedging.

Political risks also affect international finances due to differences in the tax system, rules and regulations, and local governments implementing policies that adversely affect foreign companies, such as trade barriers (Shapiro & Hanouna, 2019). Equally, there are cases when local governments impose tariffs and quotas to safeguard domestic manufacturers from international competition. Therefore, this increases the prices of global products, eventually lowering demand for such products, a situation that directly affects sales and revenues of multinational corporations. However, companies can adequately reduce the effects of political risk by using political risk insurance policies to safeguard against unexpected political implications.

Question 2- Importance of Business Ethics

            It is not convincing to claim that ethics is an unimportant aspect of business operations. There should be guiding principles that govern individual behavior and interactions, foster particular values in the organization, and guide decision making. According to Barry (2016), business ethics is an integral part of business operations as it goes beyond employee motivation, loyalty, and morale by relating directly to the company’s profitability and strategies. Equally, business ethics is pegged on the company reputation in the community, among other organizations, and investors. Hence, it is essential in determining the viability of business investment.

 Likewise, the ethical practices accord a company a positive public image that attracts more investors, increase customer base, and generate more revenue (Barry, 2016). Thus, ethics is essential in business operations because it bolsters good relationships amongst employees, reasonable marketing practices, and social responsibility.

References

Barry, N. (2016). Business ethics. Springer.

Filippou, I., Gozluklu, A. E., & Taylor, M. P. (2018). Global political risk and currency momentum. Journal of Financial and Quantitative Analysis, 53(5), 2227-2259.

Shapiro, A. C., & Hanouna, P. (2019). Multinational financial management. John Wiley & Sons.