Multinational Financial Management

Multinational Financial Management

If you are the CFO of a multinational company. What steps could you take to minimize
international risk? Describe how cash flows are used to minimize political risk.
Risk management is an important aspect of the CFO’s job. A part-time or full-time CFO
is the first line of defense in establishing and implementing the appropriate risk management and
mitigation strategies for today’s organization, from overall financial compliance to IT operations.
Threats can take many different forms, ranging from a lack of internal controls to insecurity in
private or social businesses. Understanding and minimizing the organization’s risks are the
responsibility of the CFO.
The financial and political risks connected with international trade must all be considered
by a global company. Before making key financial decisions, exchange rates, political events and
climate, international trade restrictions and tariffs, and a range of other factors must be known
(Brigham & Ehrhardt, 2020). However, in my capacity as CFO, I shall take the following steps
to mitigate international risk.
The first step to mitigating international risk is by lowering the risk of inaccurate
financial estimates in order to make key effective financial decisions. Second, I’ll share
information about how to make good use of resources all throughout the branches of the
company internationally. Third, I’ll keep the company’s cash flow in check to ensure that it
doesn’t experience liquidation. I’ll also make sure that foreign direct investment takes place in
countries other than the investor’s own. Fourth, I will reduce the potential impact of currency
risk. This will be done by hedging and risk-minimization derivatives (Brigham & Ehrhardt,
2020). l will also make sure the company’s global resources are put to good use by having solid
internal control systems. Above all, I will make certain that the organization does not invest in

the investor’s home nation and instead concentrates on profitable countries other than the
investor’s home country. I’ll also instruct the Finance Department to raise financing from
countries that are marketable.
On the other hand, to minimize the political risks, I will follow the following steps.
 Examine the political risks in the host country.
 Use relevant methodologies such as discounted cash flows after factoring in political
risks.
 Compare and contrast cash flows from operations with cash flows from investments.
 To mitigate the impact of political risk, increase cash flow from operations.
 Increase cash flow to compensate for the higher risk associated with political stability.
Minimizing political risk using cash flows
Using discounted cash flow approaches, cash flow is utilized to reduce political risk by
leveraging the commercial implications of revealing political risk. Cash flow prioritizes
investment decisions based on the availability of funds and the type of industry that can provide
high returns while minimizing political risk (Caglio et al., 2018). To prevent excessive political
risk, procedures like the usage of tranches should transfer more financial flow from the
corporation towards operational activities, depending on the level of political risk.

References

Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory and practice [with
MindTap] (16th ed.). Mason, OH: South-Western. ISBN-13: 9781337902601.

Caglio, A., Dossi, A., & Van der Stede, W. A. (2018). CFO role and CFO compensation: An
empirical analysis of their implications. Journal of accounting and public policy, 37(4),