International Finance

530 dollars

$\text{Dollars needed}=\frac{\text{Rs. 68,900}}{\text{Rs. 130 per dollar}}=530$

Domestic financial management refers to the planning, organising, directing and controlling of financial activities and resources of a business within the national boundary of a country, i.e. it deals with the management of funds raised and invested in the domestic market only.

Required dollars = Rs 5,80,000 ÷ Rs 145 per dollar = 4,000 dollars.

So, 4,000 dollars (USD 4,000) is needed.

Given:

• Price of laptop in America = USD 2,000
• Price of same laptop in Nepal = Rs. 1,75,000
• Purchasing power parity (PPP) holds

Formula: Under absolute PPP, the exchange rate is the ratio of the price of the same basket of goods in the two countries:

$S = \frac{P_{\text{Nepal}}}{P_{\text{America}}}$

where $S$ = spot exchange rate (Rs per USD).

Substitution:

$S = \frac{1{,}75{,}000}{2{,}000}$

Result:

$S = \text{Rs. } 87.50 \text{ per USD}$

Answer: If purchasing power parity holds, the spot exchange rate between America and Nepal is Rs. 87.50 per American dollar (i.e., 1 USD = Rs. 87.50).

Characteristics of Multinational Corporation

A multinational corporation (MNC) is a large business organisation that owns or controls production and service facilities in more than one country. Its head office is located in the home country, while its branches, subsidiaries or affiliates operate in several host countries. The five main characteristics are explained below:

1. International Operation The most basic feature of an MNC is that it carries on business beyond the boundaries of a single country. It establishes branches, subsidiaries, joint ventures or affiliates in two or more countries. For example, Coca-Cola operates in almost every country of the world. Thus, its production, marketing and investment activities are spread over many nations at the same time.

2. Large Size and Huge Capital MNCs are among the largest business organisations in the world. They possess huge financial resources, large-scale production capacity, a big workforce and a wide market. Because of their enormous capital base, they can invest heavily in plant, machinery, technology and research and development. Their sales turnover and assets often exceed the national income of many small countries.

3. Centralised Control and Management Although an MNC operates in many countries, its overall control and policy-making remain centralised in the head office of the home country. The head office decides the objectives, policies, investment plans and production targets, while the branches and subsidiaries in host countries implement them. Thus, there is unity of command and centralised direction over worldwide operations.

4. Advanced Technology and Professional Management MNCs are known for using modern technology, sophisticated machinery and scientific management techniques. They spend large amounts on research and development and employ highly qualified, professionally trained managers and technicians. This enables them to produce quality goods at low cost and to maintain efficiency in their worldwide operations.

5. Flexible and Diversified Business MNCs deal in a wide variety of goods and services and constantly adjust their products, prices and strategies according to the needs, tastes and laws of different countries. They diversify their investment across countries and industries to reduce risk. This flexibility and diversification help them survive and grow even when conditions change in one country.

Conclusion In short, an MNC is characterised by international operation, huge size and capital, centralised control, advanced technology and professional management, and flexible and diversified business. These features together make it a powerful force in international business.

Forward rate is the rate of exchange agreed upon today for the purchase or sale of a foreign currency at a future date.

A multinational corporation (MNC) is a company that owns or controls production or service facilities in more than one country. It has its head office in the home country and branches, subsidiaries or joint ventures in host countries. MNCs play a significant role in the economic development of host countries, especially developing ones like Nepal.

Roles of MNCs in the development of a country:

1. Capital formation: MNCs bring in large amounts of foreign direct investment (FDI), which supplements scarce domestic capital. This helps finance industries and infrastructure that the host country cannot fund alone.

2. Employment generation: By setting up factories, offices and service outlets, MNCs create direct employment for local people. They also create indirect employment in transport, banking, insurance and ancillary industries.

3. Transfer of technology: MNCs introduce modern technology, machinery and production techniques to the host country. Local workers learn new skills, and domestic firms benefit through imitation and supplier linkages.

4. Development of human resources: MNCs provide training and exposure to modern management practices, which improves the skill and productivity of the local labour force.

5. Increase in government revenue: MNCs pay taxes, duties and royalties to the host government. This increases public revenue, which can be spent on education, health and infrastructure.

6. Growth of exports and foreign exchange: MNCs produce goods and services for international markets, which helps the host country earn foreign exchange and improve its balance of payments.

7. Infrastructure and regional development: MNCs often build roads, power supply, communication and housing in the areas where they operate, promoting balanced regional development.

8. Transfer of managerial and entrepreneurial skills: MNCs bring professional management practices and a competitive business culture, which encourages local entrepreneurship.

Conclusion: MNCs act as an important engine of growth by supplying capital, technology, employment and market access. However, their benefits depend on the host country's bargaining power and policy framework, as MNCs may also cause capital outflow, dominance of foreign brands and exploitation of local resources. Therefore, developing countries should attract MNCs while regulating them properly to maximise benefits and minimise harm.

Given: 1 SGD = 1.8484 AUD and 1 SGD = 1.3748 USD.

Both rates are quoted against the same currency (SGD), so the cross rate is found by dividing one by the other.

Cross rate of AUD in USD:

$1\text{ AUD} = \frac{1.3748}{1.8484}\text{ USD} = 0.7438\text{ USD}$

Cross rate of USD in AUD:

$1\text{ USD} = \frac{1.8484}{1.3748}\text{ AUD} = 1.3445\text{ AUD}$

Answer: The cross rate is 1 AUD = 0.7438 USD, or equivalently 1 USD = 1.3445 AUD.

Foreign currency is important in a multinational corporation because it is needed to carry out transactions, investments, and trade across different countries.

A multinational corporation operates in more than one country, so it must buy and sell goods, pay wages, remit profits, and settle debts in the currencies of the host countries. Foreign currency is therefore essential for making international payments, converting revenues earned abroad into the home currency, and managing exchange rate risk.

Amount in dollars = Rs. 300,000 ÷ Rs. 135 per dollar
= USD 2,222.22 (approx.)

Given: 1 Euro = 1.4661 CAD and 1 JPY = 0.0117 CAD.

Both currencies are quoted against the CAD, so the cross rate is found by dividing one rate by the other.

$\text{JPY per EUR} = \frac{\text{CAD per EUR}}{\text{CAD per JPY}} = \frac{1.4661}{0.0117} = 125.31$

So 1 Euro = 125.31 JPY (125.3077 to four decimals).

The reverse cross rate is

$1\text{ JPY} = \frac{0.0117}{1.4661} = 0.00798\text{ Euro}$

1. Derived rate — It is calculated from two exchange rates.
2. No involvement of home currency — In a cross rate between two foreign currencies, the home currency does not appear.

Multinational vs. Domestic Financial Management

Conclusion: Domestic financial management is confined to one country and one currency, whereas multinational financial management operates across borders, dealing with multiple currencies, exchange and political risks, and wider but more complex financing and investment opportunities.

Given: £1 = USUSD 1.66 and DM 1 = USUSD 1.23.

Both currencies are quoted against the US dollar, so the cross rate is found by dividing one rate by the other.

$\text{DM per £} = \frac{\text{USUSD per £}}{\text{USUSD per DM}} = \frac{1.66}{1.23} = 1.3496$

So £1 = DM 1.3496.

The reciprocal cross rate is

$\text{£ per DM} = \frac{1.23}{1.66} = 0.7410$

so DM 1 = £0.7410 approximately.