Investment Projects and Sources of Funding

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Introduction

Financial management within organizations incorporates various responsibilities such as evaluation of all investment projects and various sources of funding such projects. Organizations require application of excellent management principles for profit to be realized. Such actions reinforce investor and shareholder confidence in the organization.

Areas in which purely domestic firms are exposed to international risks

Purely domestic firms face transaction exposure where most business transactions (imports or exports) are denominated in foreign currency. Domestic companies in US face currency risks since at times the raw materials purchased are priced in foreign currencies other than USD (Butler, 2004). Then there is operating exposure concerned with changes in real exchange rate which determines various changes in relative prices, which ultimately determines firms general performance.

Domestic firms also face economic flows associated with floating cash flows as well as projected cash sales of available. There is high possibility of reduction on future sales and cash flows in the event that home currency used in exchange, trades lower than that of a foreign competitor transacting business with the same domestic customer (Butler, 2004).

At the same time, purely domestic firms are exposed to translation risks where there is application of different accounting rules. This emerges whenever domestic firms transact business with firms having foreign roots. There is a high possibility of loosing some finances in the process of translating financial statements and cash flows into acceptable accounting standards e.g. US uses GAAP standards (Butler, 2004).

Definition and discussion of major differences between domestic and multinational firm

A multinational corporation (MNC) can be referred to as the kind of business firm with operations in other countries and has production and sales operations internationally other than parent country (Kasibhatla et al., 2001). Domestic firm on the other hand refers to firms having major commercial activities and processes taking place within borders of parent country. Such company has the benefit of dealing with domestic provisions such as currency, culture, government legislations as well as tax system (Eiteman et al., 2010).

Domestic and multinational firms differ based on Multiculturalism and geographic dispersion. Multiculturalism can be observed as having tremendous contributions towards increasing creativity and innovation due to accumulation of vast experiences, skills and knowledge from diverse background.

It also improves sensitivity in dealing with different customers including foreigners and super-organizational culture. Multiculturalism also enables MNC adapt to wider range of environments hence change appropriately. At the same time, engaging firms into global integration of activities assist them in realizing increased economies of scale and scope hence lowering costs of production (Eiteman et al., 2010).

Discussion on ways that firms benefit in the international market

Firms operating within international market can benefit from interest rate swap and currency swap. Firms benefit from such swaps in such a way that they assist companies in managing exposure to fluctuations in interest rates. At the same time swaps reduces cases of uncertainties on projected financial cash flows.

However, Domestic firms benefit from swaps in that they are exposed to better rates as compared to foreign firms. Two parties with different advantages in different market environments are capable of taking advantage of the global market based on currency and interest rate swaps (Carbaugh, 2004).

Firms also benefit from improved product and service effectiveness due to being exposed to new knowledge. The expansive knowledge enables firms to become more effective in rolling out new products and improving their product and service deliveries.

At the same time, international market enables firms to gain stronger competitive advantage over local competitors unable to compete on a global platform. Application of appropriate global strategy with right management team allows room for development of focused organization hence faster adaptation to customer demands within marketplace.

Focus on global market enables discovery of new markets hence possible achievement of economies of scale through standardization process. Introduction of internet within global market allows for easy interaction with customers on a world platform. The company has the opportunity of reaching potential customers through single point of contact, for example through companys website. This assist in cost savings since several customers can be granted better services world wide at the same time (Eiteman et al., 2010).

Definition of corporate governance and explanation on the four main provisions of the Sarbanes-Oxley Act 2002 (SOX)

Corporate governance refers to governing power within an organization endowed with the responsibility of managing organizations activities and assets. The body comprises board of directors, shareholders, stockholders as well as other office bearers within the organization.

Sarbanes-Oxley Act 2002 (SOX) was created for the purposes of renewing public confidence in United States financial domain. The act incorporates four main provisions which include; Responsibility of CEOs and CFOs of publicly traded firms on published financial statements, responsibility of corporate boards who are expected to work alongside independent audit and compensation committees, provisions barring companies from granting loans to corporate officers and directors and procedures followed by companies to prevent fraudulent activities in the process of testing internal financial controls (Schroeder et al., 2006).

References

Butler, K. (2004). Multinational finance (3rd ed.). Mason, OH: Thompson South-Western

Carbaugh, R., J. (2004). International economics (9th ed.). Mason, OH: Thomson.

Eiteman, D., Stonehill, A., & Moffett, M. (2010). Multinational business finances (12th ed.). Upper Saddle River, NJ: Prentice Hall

Kasibhatla, M., Rivera-Solis, L., E., & Malindretos, J. (2001). MNC foreign exchange exposure under FASB no.8 and FASB no.52: A survey. American Business Review

Schroeder, R., Clark, M., & Cathey, J. (2006). Financial accounting theory and analysis: Texts and cases .(9th ed.). Hoboken, NJ: Wiles

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