Financial management is one of the most important aspects of any business, as it directly influences the profitability of a firm. Financial management always involves strategic planning, organizing, and controlling financial resources to gain a competitive advantage in the market. Both national and multinational companies (MNCs) faced many financial management challenges, which may end up affecting their success. However, MNCs face major challenges because they are faced with adapting to diverse economic and political issues that affect financial management. Countries often have different rules and regulations that are related to financial issues. Thus, it is necessary to explore international financial management challenges that MNCs encounter.
Unlike national companies, MNCs are subjected to a diverse economic environment that may adversely affect their financial management strategies or plans. They operate in both developed and developing countries with various financial laws guiding the operations of a business. For instance, countries have different tax and credit conditions, which MNCs are required to comply with ( Rivera & Oh, 2013) . Consequently, companies find it challenging to anticipate the day-to-day financial trends in the international market. Also, with different financial tax rules and regulations, MNCs are subjected to many noncompliance risks, which can increase the cost of operations in the international market ( Rivera & Oh, 2013) . At the same time, with a diverse economic environment, MNCs cannot easily maintain a healthy equilibrium in their financial framework, leading to many uncertainties in financial management strategies. Diverse economic environment, therefore, is one of the major international financial management issues that are faced by MNCs.
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The second major challenge is the dynamism in the foreign exchange rate. The dynamic or fluctuating exchange rate poses many uncertainties to the financial managers of various MNCs ( Bowe, 2009) . Specifically, with changing the foreign exchange rate, financial managers find it difficult to relate the value of the home and foreign currencies, which may affect financial planning. For instance, MNC that implements a project in emerging or developing countries may be forced to pay a higher interest rate than when the same initiative is executed in a developed nation. Also, fluctuating foreign exchange rates makes it challenging for MNCs to set appropriate prices for their products and services, primarily when they are sold across countries ( Sageder & Feldbauer-Durstmüller, 2018) . Dynamic foreign exchange rates adversely affect financial planning and estimations.
Also, diverse banking regulations are some of the challenges facing MNCs, especially concerning financial management. Global financial managers are dealing with many local and international banking institutions that operate under different rules and regulations ( Ruggie, 2018) . International financial institutions such as the World Bank provide conditions for various commercial and development banks, which end up affecting the operations of MNCs. Besides, the interest rates that are charged by banks vary from one country to another ( Kuswanto, Hoen & Holzhacker, 2017) . MNC financial managers must always encounter varying banking regulations that also influence financial management in global operations.
In conclusion, international financial management is not an easy task because MNCs have to face numerous economic and political issues, which can end up creating uncertainties. The challenges have a negative impact or effects on financial planning, and they can increase the risk of failure. MNCs operate in a business environment that is characterized by numerous financial uncertainties. However, relevant knowledge, skills, and experience on international financial matters can help in overcoming the challenges, leading to the long-term success of MNCs.
Part II
Question 2.1
The US central bank is known as the Federal Reserve of the Fed, which is tasked with the responsibility of managing monetary policy while regulating the operations of financial institutions. Besides, the Fed ensures that the US economy is stable. Thus, the Fed plays a critical role in the US economy. My country us using a free-floating exchange rate system because it is influenced or determined by the demand and supply forces in an open market ( Fratzscher et al., 2018) . Market forces freely determine the exchange rate in the country.
Question 2.2
Although the US has a floating foreign exchange system, it sometimes intervenes to ensure economic stability. The main purpose of the US foreign exchange intervention is to counter disorderly market conditions. The country mainly uses foreign exchange policy to ensure the stability of the financial market ( Fratzscher et al., 2018) . Thus, it uses indirect intervention to allow market forces to also play a role in determining the exchange rate.
Question 3
My pretend business is Fashion Company that sells its products in the international market. My company is mainly targeting female consumers, especially those with high incomes. Fashion clothes are relatively expensive when compared to ordinary clothes. The company will have its subsidiaries in the USA and other emerging countries such as Brazil, Singapore, and India. Besides, the company will be offering online services, especially in terms of shopping and learning about available products. Online services make it easy for the company to access and closely interact with international customers. It will employ local employees to run various foreign branches to reduce the cost of operations. The design of fashion clothes will be sensitive to local culture and social trends.
References
Bowe, M. (2009). International financial management and multinational enterprises. In The Oxford Handbook of International Business .
Fratzscher, M., Menkhoff, L., Sarno, L., & Stöhr, T. (2018). Foreign exchange interventions: Frequent and effective . Retrieved from https://voxeu.org/article/foreign-exchange- interventions-frequent-and-effective
Kuswanto, K., Hoen, H. W., & Holzhacker, R. L. (2017). Bargaining between local governments and multinational corporations in a decentralized system of governance: The cases of Ogan Komering Ilir and Banyuwangi districts in Indonesia. Asia Pacific Journal of Public Administration , 39 (3), 189-201.
Rivera, J., & Oh, C. H. (2013). Environmental regulations and multinational corporations' foreign market entry investments. Policy Studies Journal , 41 (2), 243-272.
Ruggie, J. G. (2018). Multinationals as a global institution: Power, authority, and relative autonomy. Regulation & Governance , 12 (3), 317-333.
Sageder, M., & Feldbauer-Durstmüller, B. (2018). Management control in multinational companies: a systematic literature review. Review of Managerial Science , 2(1), 1-44.
