Financial Functions In Multinational Firms

Finance is the Life Blood of the Business and so the case of MNCs also. The only difference in finance of domestic companies and MNCs is that the finance in domestic companies is in domestic currency where as in case of the MNCs the finance is in multi currencies. But whatever be the conditions, with out finance, no company can exist. Finance is required for many purposes like purchase of raw material, purchase of machinery, purchases of the related items, payment of salaries, meeting the operational expenses, etc., so the finance is required for all these purposes. The activities of providing finance to the MNCs are known as Financing MNCs. There are three types of financing namely Short – Term Financing, Financing Foreign Trade and Long- Term Financing.

Short – Term Financing is Financing the working capital requirements of multinational companies’ foreign affiliate’s poses a complex decision problem. This complexity stems from the large number of financing options available to the subsidiary of an MNC. Subsidiaries have access to funds from sister affiliates and the parent, as well as external sources.

Foreign Trade is the main business of the traders of ever country. Almost all the MNCs are heavily involved of foreign trade in addition to their other international activities. So they require finance for all activities related to the trade, working capital, and other services namely letter of credit and acceptances. Hence, the people who are responsible for the management of the MNCs must have the practical knowledge of the institutions to facilitate the international movement of goods.

The following are the long term financing particularly for the capital equipments and other big items given to the MNCs who are actively engaged in the Foreign Trade.

• Export Financing
• Export Credit Subsidies and
• Export Credit Insurance. 

Items requiring long repayment arrangements, most government of developed countries have attempted to provide their domestic exporters with competitive edge in the form low-cost export financing and concessionary rates on political and economic risk insurance. Nearly every development nation has its own export-import agency for development and trade financing.