Finance Management in Multinational Organizations - Essay Example

Thus the overall uncertainty related with multinational firms require that such organizations must develop and implement financial strategies which help them not only to successful manage the risk but also ensure that consistent profits are streamed into the firm from its operations. Due to increased risk, multinational organizations often use financial derivatives to hedge themselves against certain risks also so that the overall financial interest of the organization remain intact. There are different areas which multinational organizations look to manage in terms of managing the financial resources of the firm.

For example, use of debt is one of the most critical aspects of availing and managing it besides ensuring that firm generates enough cash flows to repay the debt too. Similarly, setting up adequate dividend policies is another area of importance which needs to be taken care off as shareholders of multinational organizations often place a larger premium on the overseas operations of multinational organizations. One of the most important characteristics of financial management at multinational organizations is the dealing in foreign currency.

Multinational organizations often deal in more than one currency and also have to translate their earnings and revenues into one base currency therefore besides running other risks; multinational organizations also have to deal with the risk arising due to movement in foreign exchange rates. (Stopford & Wells, 2007). Similarly management of debt is also an important aspect of financial management as it directly correlates with the tax management also. In a bid to manage taxes in more efficient manner, multinational organizations often shift the debt to high tax countries in order to free up some liquidity as well as avail overall reduction in cost of debt.

This also supports multinational organizations to achieve optimum level of capital structure