Table of contents

Content

Executive summary…………………………………………..……………………..……2
Introduction…… …………………………………………………………………..…….3
Multinational Corporation ……………………………………………………………….3
MNCs structure……….….……………………………………………………………….3
Strategic Business Units (SBU)………………………….……………………………....3
Matrix organizations ……………………………………..………………………….…..4
Risk faced by MNCs……….…………………………………………………………….4
Currency flatuation …………………………………………………………………….4
Factors that affect currency fluctuation..........……………..…………………………….5
Body…….………………………………………………...……………………………..5
Long term decisions by MNCs …….…………………………………………………….5
SOURCE SOF FINACE ……………..……………………….………………………..5
MNCs Types of decisions in long run ……….…………………..……………………..6
Advantages taking by MNCs through long term …..………….………………………..7
Payables and receivable……………………….………………………………………..8
Hedging with Interest Rate Swaps…………..…………………………………………..9
Short term MNCs decisions……..………………………………..…………………….9
International cash management……………………………………………………….…9
Credit and Inventory Management……………………………….……………………..9

1
 EXECUTIVE SUMMARY

MNCs are the coprations which tarde in more than one countries.msc operates in two
types of structure that’s is startegic business units and natrix organization.MNCs
facemany risk major are the ecnomic,tarslation and tarsformation.and also see the currncy
flactuation rsik.currncy falctuation is effected by many factors diccued in the projcet
MNCs take short and long term decision on the basis of currncy falctuation nad excahnge
rate.they get thes fanice through the debt and equity resoureces.they take advantages
throug heding .and see the payeble and recivable desion on these long term and short
term.MNCs take advantage throut see spot nad futre contarct

2
 INTRODUCTION

Multinational Corporation (MNCS)

A company that does business in more than one country is called an MNCS. A
corporation that maintains assets and/or operations in more than one country.
For example, raw materials are in one country, a product's manufacture in a second
country, and sale in a third country. A company manages its operations from a main
office in its home country.
There are four categories of MNCS:
(1) Multinational, decentralized firm with strong home country presence,
(2) global, centralized firm that acquires cost advantage through centralized production
wherever cheaper resources are available,
(3) International, firm that builds on the parent firm's technology or R&D, or
(4) Transnational, firm that combines the previous three approaches.

MNCS Structure
There are two types of structure of MNCs:
1. Strategic Business Units (SBU)
2. Matrix organizations

Strategic Business Units (SBU)

Worldwide Area Structure and Strategic Business Units (SBU) are more popular forms of
organizational structure in big corporations. MNCs organization structure represent to
formal reporting to organization. Independent organizations with SBUs function has a
separate income statement and balance sheet
MNCSs in their beginning of venture send there employed in certain regions of the world
where they have started or try to start business to supervise the functions in those regions
but this cause conflicts between the functional heads and the heads of the international
division.
The Authorities in Sub
 Span of control

3
Control given to the maximum number of subordinates a manager can effectively
supervise.
 A narrow span (tall organization)
of control means lesser or fewer number of people. While a narrow span of control
includes many managers and centralized decision making and they report to a manager
 A wide span (flat organization)
Means more subordinates reporting to one manager.
Wide span include fewer managers and more delegation of authority. The authority is
delegated determines centralization and decentralization.

Matrix Organizations
In this type of structure the subordinate report to two bosses. It is very effective and has
no conflict in the reporting. Customer need are identify and products and services are
deliver and through a network of specialists.
Chapter 6: Organizational Structure of MNCSs

Risks faced by MNCs

The major risk faces by MNCs are
1. economic risk
2. translation risk
3. transaction risk
Some other types of risk are also there
4. Exchange Rate Risk.
5. country risk
6. sovereign risk
7. transfer risk
8. political risk
9. financial risk
10. operating risk
http://www.scribd.com/doc/44301879/16-MNCS-Risk-Management-5
Currency fluctuation

4
The difference or change between the value of currency between one country and
another when issued .this process is called currency fluctuation. currency fluctuation
occurs on daily basis and impacts the relative rate of exchange between various
currencies on a continual basis on the results of foreign currency trading activity for the
day. It is currency fluctuations that investors in currency exchange deals look to closely
in order to generate a profit from their investments.
Factors that effect currency fluctuation
There are many reason of currency fluctuation
1. 1:the changes in economic position (indices like GNP gross national product)
2. macroeconomics policies(for the long term)
3. changes in interest rate
4. Speculation
5. Currencies fluctuation
6. Supply-demand factor on currencies.
7. consumer index
8. Foreign investment
9. Inflations rate
10. National Income or Gross National Income (GNI)
When rise in income occurs people spend more money increase the demand for
currency .this demand will increase the demand for local currency that is it appreciate
conversely depreciate foreign currency

Body

Long term decisions by MNCs

MNCs invest in long term projects; for that they need long term finance .Once the finance
decision has been made MNCS look for the possible sources of providing loans or of
personal money (equity)and also see risks the link with these financing decisions.
SOURCE OF FINACE
They get this finance from the equity or debt
Sources of equity

5
 1. Personal savings Personal savings
2. Friends and family members
3. Partners Partners
4. Corporations
5. Venture capital companies Venture capital companies
Source of debt
1. Commercial
2. Trade credit
3. Equipment suppliers
4. Commercial finance companies
5. Saving and loan
6. Asset based lenders
MNCSs take equity funding from the source in their local country and engage in debt
financing in foreign countries. For the debt they have to pay the interest and face the
fluctuation in e the exchange rate of the foreign currency .If the borrowed currency
appreciates M NC will need more funds to cover the coupon or principal payments
MNCs Types of decision
MNCs have 5 types of long term decision which MNCs take
1. Foreign Direct Investment
2. Investment Cash Flows and Decisions
3. Capital Structure
4. Long-Term Debt
5. Equity Capital

Foreign Direct Investment (FDI) is the shift of assets, administrative, and technical
assets from home country to a foreign country .MNCs may have totally a personal
financing resulting to owned the subsidiary or may not have totally finance for that
reason they do joint venture with the foreign country. MNCs taking the fdi decision face
the exchange rate risk financial and Inflation

6
Investment Cash Flows and Decisions
When taking long term by investment decision MNCs in subsidiaries they must risk of
international cash flows and see the taxes and also see the risk if cash flow will b
blocked
Capital Structure
MNCs are located in different regions .may have low bugged for long term financing
.Part of this might be explained that MNCSs based in different countries and regions may
have access to currencies and markets, resulting in variances in capital structures for
these MNCSs
Long-Term Debt
MNCs while taking long term decision take the debt from several other countries in the
form of international bonds, foreign bond or through the euro bonds .
Equity Capital
For long term decision in equity the MNCSs raise personal finance in such away that
they have the parents stocks and those are distributed internationally which is owned by
different shareholder in different countries
(Lawrence j.gitman, International Ma Chapter 16 material Finance, managerial financing)
Advantages taking by MNCs through long term
There is a weak relationship between the stock returns of firms and exchange rate
fluctuations exchange risk is important for corporations and that many corporations are
working to hedge the risk. Exchange rate exposure by examining whether the ability of
US multinational firms to construct operational hedges
1: Operational hedges operational hedges
Are more effective in managing long-run.it is best for the competitive position
2: financial hedges
Financial hedge means the use of currency derivatives on foreign exchange exposure .it
is more valuable for managing short-run exposures.
The "breadth” is amount of a set of connections stretch across many foreign countries and
the “depth" is the amount set of connections awareness in a few foreign countries. the
collision of breath and depth on MNCS's exchange risk .It is found that MNCSs with

7
greater set of connections breadth are less bare to currency risk whereas firms with more
highly determined set of connections greater depth are more exposed.
(Christos Pantzalis.Palgrave. P5)

Payables and receivable

Gain and loss are due to the difference between the exchange rates at the date of purchase
and at the date of payment. At the time of transaction Fluctuations in exchange rate
occurs usually at the time payment for the goods or services or at the time of buying or
purchase of the goods. If exchange rate price of goods is lower than it is profitable for
company but the exchange rate at time of payment is high will bear loss. to prevent losses
from foreign currency devaluations. Exporters or companies prefer to pay their
receivables in U. S dollars. This creates loss due to different between us dollar amount in
exchange rate at the time of the closing of the export transaction and the U. S. dollars
similarly upon exchange of the foreign currency received in settlement of the open
account.
Company trading in international markets can accept the future UN wanted changes in
foreign exchange by creating an offsetting liability or asset in the foreign currency at the
time to receive or pay. The companies can hedge by opening bank accounts in foreign
currencies or even with a local bank.
Payable in foreign currency in the future iit is necessary to have amount in same currency
to paying it can b done by purchasing the same currency and placed in the bank accounts
so at time of payment amount is available. This transaction is commonly known as a
"hedge." Its purpose is to minimize the exchange risk by securing forward cover for the
export transaction. The forward exchange market can offer protection against this type of
risk as well. (Author(s): Donatello M. RosignoliSource: Lawyer of the
Americas,Published by: University of Miami Inter-American Law ReviewStable )
Short term MNCs decisions
MNCS firms have right to use to accounts payable, accruals, non-bank and bank sources
of short-term funds and have right to use the local market for funding. the subsidiary’s
borrowing and lending opportunities are often greater since it can rely on the potential
backing of the parent company.

8
Borrowing in local markets where only one currency and a nominal interest rate is
involved both nominal and effective interest rates. The currency forecasting is done for
investment and borrowing decisions
International cash management,
The MNCS can protect from currency fluctuation or exchange rate risk by hedging by
certain adjustments in cash and its operations.
Credit and Inventory Management
MNCs can take advantage buy giving attractive credit term to its customers
Inventory management,

Advantage form currency fluctuations

1. Exchange rate

MNCS take advantage through the exchange rate also called forex stands .Forex futures
allow traders to buy or sell currency at arranged date and determined exchange rate.
Chart formation indicators are the source from where the trends come. Spreads have a
tendency to trend much and interest depend on the country futures contracts when the
trading u buy or sell the currency for purchasing of goods

Spot

In spot contract the when you pay u get higher money the amount when some pay to u.in
spot there are trading information trading price. This give advantage is that u trade
against the house

Future contract

And according to future contract, the amount paid or gain is same with the interested also
provide information on statics. It also provide benefit from currency fluctuation .through
future contract u do repair of currency.

9
MNCs don’t hold out for big income. They always see material which can come on hands
MNCSs make relations outside with peoples who are potential future contract .MNCSs
take advantage through the exchange rate and increase the profit through the fluctuation

10
 CONCLUSION

MNCs take advantages through the currency fluctuation through the exchange rate in the
term of expenses when the currency appreciate MNCSs face loss and when depreciate
MNCs gains, and when depreciate MNCSs in the term of paying face loss and appreciate
MNCs face gain. MNCSs gain through diversification they have negative correlation one
currency gain and other loss.MNCs still can gain profit from one country but this
diversification also cause risk .MNCs payable depend on their assets or if the y don’t
have they take from the money market or from financial institution. MNCs with
undisclosed exposure to currency risk if it is in depth. And are more expose to risk if
MCs are highly concentrated

11
 REFERENCES
1. Palgrave Macmillan Journals, (2001), Christos Pantzalis, Betty J. Simkins, Paul
A. Laux. Journal of International Business Studies, Vol. 32, No. 4, pp. 793-812
2. University of Miami Inter-American Law Review Stable 1971, Lawyer of the
Americas, (Donatello M. Rosignoli, Vol. 3, No. 3 (Oct., 1971), pp. 446-463
3. http://financial-dictionary.thefreedictionary.com/Multinational+company
4. http://businessdictionary.com/definition/multinational-corporation-MNCS.html
5. http://icmrindia.org/courseware/Management%20of%20Multinational
%20Corporations/MNCSs-DS6.htm
6. http://wisegeek.com/what-are-currency-fluctuations.htm
7. http://hubpages.com/hub/What-causes-Currency-Fluctuations
8. (Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational
Corporations
9. http://scribd.com/doc/44301879/16-MNCS-Risk-Management-5
10. http://essays.se/essay/ef56d482ec/

12