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Financial Management in the Global Business
The standard living of each country is almost solely a function of how well the economy functions within that country, not relative to other countries.
It is another issue that will arise with respect to the real world.
In an international business, investment, financing and money management decisions are very hard in terms of comparisons in currencies, tax rules and regulations that concerns the flow of capital across the borders, levels of economic and political risk, and so on when it comes to deal with financial management. To explain this briefly,other global countries can be better off materially once they specialize in producing goods for which they have comparative advantage.
It is important to distinguish between absolute and comparative advantage because it will be a basis for identifying international business and in the long run, there will be an arguments of free trade. Honestly speaking, they mainly point out the costs of trade; they do not consider the benefits or the possible alternatives for reducing the costs of free trade while still reaping benefits.
On the next paragraph, the writer of this article will give the readers and viewers a little background of absolute and comparative advantage.
Absolute advantage is the ability to produce more output from given inputs of resources than other producers can.
Comparative advantage is the ability to produce a good or service at a lower opportunity cost than other producers.
Good financial management can be a significant source of competitive advantage because it is a trend nowadays. Competition is very natural in terms of coming imported goods directed to the designated countries. This is through the help of Charles W. L. Hill of which, he was well known author of "International Business: Competing in the Global Marketplace 4th Edition"
Money management decisions is a decision about how to manage the firm’s financial resources most efficiently which is exclusively to the managers or for those who manage their business.
The principal objectives of global money management are to utilize the firm’s cash resources in the most efficient manner and to minimize the firm’s global tax liabilities because that is the main purpose.
It is more on investment decisions because there are many economic, political, cultural, and strategic variables influence a decision to invest in a given country.
Different nations will always have different comparative advantages because of differing opportunity costs due due to different resource mixes and they are not all the same ability.
One role of the financial manager in an international business is to try to quantify the various benefits, costs, and risk that are likely to flow form an investment in a given location. This is done by using capital budgeting techniques as long as they how to handle it from time to time.
Global Money Management is the tax objective because it considers as a main purpose of financial management in International business.
Reducing a firm’s economic exposure requires strategic choices about how the firm’s productive assets are distributed around the globe.
In order to reduce economic exposure, it must have a strategic choices that go beyond the realm of financial management. The secret key to reduce economic exposure is to distribute the firms’ productive assets into various locations so the firms long-term financial well-being is not adverse changes in exchange rates.
The last part that readers and viewers must discover that they must developed policies for managing foreign exchange exposure.
My word of advice when it comes to managing foreign exchange exposure effectively, the firm must exercise centralized oversight over its foreign exchange hedging activities, recognize the difference between transaction exposure and economic exposure, forecast future exchange rate movements, establish good reporting systems within the firm to monitor exposure positions, and produce regular foreign exchange exposure reports that can be used as a basis for action.
This is proven and tested in terms of reality business because it is a source of foreign exchange.
For details on how various firms manage their foreign exchange exposure, they can search it that contains in the foreign exchange issue of Business International Money Report; December 18, 1989; pp. 401-12.
Hill, Charles, W.L. "International Business: competing in the global marketplace 4th edition" New York: Mc-Graw Hill, Inc., 2003.