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Finance

1. Briefly explain how the exchange rate risk affects the capital budgeting decisions of multinational companies.

2. Briefly explain how the political risk affects the capital budgeting decisions of multinational companies.

3. Briefly explain how the tax law differences affect the capital budgeting decisions of multinational companies.

4. Briefly explain how the transfer pricing affect the capital budgeting decisions of multinational companies.

5. Briefly explain how the a strategic rather than a strict financial viewpoint affect the capital budgeting decisions of multinational companies.

Solution Preview

The response addresses the queries posted in 808 words with references.
//Before writing about the impact of political risk on the capital budgeting decisions of multinational companies, it is essential to know about the impact of exchange rate risk on the capital budgeting decisions of multinational companies//

Finance: Capital Budgeting Decisions

Answer 1

Exchange rate risks are used to evaluate the effect of change in exchange rates on the NPV of the expected cash flows from a project of foreign investment. All the multinational companies take the capital budgeting decisions in a global business environment of changing exchange rates. Among all the business decisions, the most important business decisions are capital budgeting decisions which are affected by the exchange rate risks. The frequent fluctuations in the exchange rates make the capital budgeting decisions of MNC's delay. The MNC's can have a great loss or profit due to the fluctuations in the exchange rates. If the exchange rates become low after making the capital budgeting decision, the management of the multinational companies has to face loss or vice- versa (Saudagaran, 2002).

//Above is the discussion of impact of exchange rate risk on capital budgeting decisions of multinational companies. Now, as per the guidelines, explanation about the impact of political risk on the capital budgeting decisions of multinational companies is to be discussed//

Answer 2

The capital budgeting decisions of the multinational companies are affected to a great deal by the political risks. The countries of global business environment in which the MNC's operates have different political rules and regulations. The political risks may arise due to the democratic elections, frequent developments in the government like revolutions, changing of the ...

Solution Summary

The response addresses the queries posted in 808 words with references.

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