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Multinational Corporations - Essay Example
Author : mortonvolkman
Finance & Accounting
Pages 5 (1255 words)
I have learnt about the cash flows of multinational corporations. Apart from profit maximization, maintaining a healthy cash flow is also very important for a company and it needs very good management…
The fluctuations in the forex may result in great losses. In order to get protection from such losses, there are helpful tools like futures contracts which reduce the credit risk greatly. Forward contracts are also very helpful if a party is looking for hedging. A party can also make currency option contracts to protect itself from fluctuating rates. A country has the option to adopt an exchange rate system of its choice. It looks to adopt the system that works best in achieving current account equilibrium. Exchange rates also influence inflation and interest rates of a country which is why the central banks seek some involvement to control the exchange rates. Q2 In the context of international trade, absolute advantage is the ability of a country to use the similar amount of resources as other countries and produce more of a product. On the other hand, comparative advantage is a country’s ability to produce more of a product than other countries at a lower opportunity cost. (Findlay, 1987) Suppose that there are two countries A and B. Country A produces the amount of wheat in 10 hours which is produced by country B in 15 hours. Also, country A produces that much rice in 10 hours which is produced in 15 hours in country B. ...