Act87530 Csu Multinational Financial Management: Possum Products

Multinational Financial Management: Possum Products

California Southern University

ACT 87530

October 6, 2018

Dr. Mitchell Miller

Global issues: Multinational Financial Management: Possum Products

Introduction  

        Possum Products has ambition for growth and in becoming a multinational corporation, however, they will need to gain a complete understanding of the many facets and considerations that are necessary to conduct business internationally.

A multinational corporation (MNC) is defined by Brigham & Ehrhardt (2015) as an enterprise operating in several countries but managed from one native country.   Typically, any business or that gains about twenty five percent of its revenue from operations outside of its native country is considered a multinational corporation.  There are four categories of multinational corporations: (1) a multinational, decentralized corporation with strong native (home) country presence, (2) a global, centralized corporation that acquires cost advantage through centralized production where the most inexpensive resources can be purchased, (3) an international business that builds on the parent corporation's technology or R&D, or (4) a transnational business that combines these, aforementioned approaches (Brigham & Ehrhardt, 2015).

Possum Products has ambition for growth into becoming a multinational corporation, however, they may not fully have an understanding of the many facet and considerations that necessary to conduct business internationally.  Numerous factors need to be considered to compete and have businesses internationally, such as; gain an understanding exchange rate, cultural differences, import and export laws and taxes as applicable, technology needs, political barriers, hurdles, and ramifications for allowing foreign businesses to conduct commerce, taxation implications, political risks and labor laws.  This case reviews these considerations, which will assist Mr. M. Munger, CEO in his decision-making process for expanding into foreign countries and operate as a multinational corporation.

Analysis

Different currency denominations can have a significant impact on the success of a multinational corporation and it needs to be understood that a direct quotation takes a specific number of the native (home) currency and values it against the foreign currency.  As an example, the direct quote for euros would EUR/USD = 1.25.  Also important to know is that an indirect quotation takes a specific number of the foreign currency and values it against the native currency.  As an example, the indirect quote for kronor would be USD/KRO = 7.00.  Typically, the euro is quoted as a direct quote but if it was necessary to provide an indirect quote it would be calculated by taking 1.0 USD/1.25 EUR = 0.80 and the kronor could be viewed as a direct quote by taking 1.0 USD/7.00 KRO = 0.143.  The cross rate is the exchange rate that exists between two currencies other than the dollar ((Brigham & Ehrhardt, 2015).  It will be essential to understand that the cross rate between the euro and kronor can be calculated as 7.0 x 1.25 = 8.75 kronor/euro and subsequently, as 1.0/8.75 = 0.1143 euro/kronor.