Management of Multinational Corporations

The objective of corporate financial management is to maximise shareholder wealth. With the integration of world markets, the amount of foreign exchange transactions and the consequent risk for the international business community has increased. Exchange rates are determined by the forces of demand and supply. Though forecasting is no simple task, the law of demand and supply provide a base to forecast exchange rates and prove how interest rates and inflation have a direct impact on the exchange rates. The interest rate parity theorem, purchasing power parity theorem and the international Fischer effect theorem help us understand and predict short-term and long-term exchange rate fluctuations. The integration of world capital markets have opened up new avenues for funding and have developed innovative methods for pricing of financial instruments. Various financial and technological innovations have helped managers build suitable risk management systems. The use of derivatives in risk management has substantially increased in many parts of the world. The geographical diversification attained by MNCs help hedge themselves against adverse economic conditions in any one part of the world.