A multinational corporation

A multinational corporation

A multinational corporation is a large corporation with resources and amenities in at least one state other than its home country. Some of the financial markets available to multinational corporations are; Eurocurrency market, Eurobond Market, International stock market, Euro credit market, and foreign exchange market. Multinational corporations invest in foreign markets due to;

International diversification; investors enjoy risk reduction benefits when they internationally diversify their asset portfolio instead of relying merely on one country’s economy. Businesses with a stock portfolio across countries in Europe are less risky than those firms with stock portfolios in a single European country. The investors are also able to extend their resources across a portfolio of industries due to foreign market accessibility, which is not locally available.

Economic conditions; investors may have high-performance expectations of companies in a certain foreign country as opposed to locally operating firms. For instance, breaking trade barriers for European Union member states brought about encouraging economic conditions that attracted foreign creditors and investors

Favorable rate of exchange expectations; most international corporations invest in foreign financial markets with a speculative motive that the currency of the foreign country will appreciate in the future therefore a likelihood to earn profits.

Some financial establishments may consider issuing credit to financial markets that are located outside their home country for several reasons as highlighted below;

Exchange rate expectations; countries that have currencies that are more likely to appreciate, than that of the creditor’s home currency, have a high chance for credit consideration from the creditors. This is because the creditors will gain a monetary benefit when such currencies appreciate it.

International diversification, Creditors enjoy a benefit of borrowers’ bankruptcy that is accrued due to international diversification. The success of such a strategy is attributed to the relationship between the economic conditions of nations. Diversification will be less effective across countries experiencing similar business cycles.

Foreign interest rates; several nations are faced with a scarcity of credit means, which can lead to somewhat high market interest rates, even after putting into consideration the risk of default. Overseas creditors may endeavor to exploit the heightened rates of interest, thus offering capital to foreign markets. Nonetheless, moderately high-interest rates are usually alleged to reveal quite a high inflation rate in the said nation. To the level that inflation can bring about the devaluation of the resident currency compared to other countries, a wearying of the native currency over the period in question could possibly counterpoise increased interest rates in the nation. There exists a non-exact correlation between a country’s currency movements and estimated inflation. However, there exist other aspects that influence movements of currency leading the investors to believe that, interest rate advantage within a certain nation will not be counterpoised by the depreciation of the local currency over the period in question.