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Finance Function in a Global Corporation

In: Business and Management

Submitted By vision3070
Words 291
Pages 2
As companies globalize, they face new financial challenges. Here, the major challenge faced by the Global CEO is giving companies a powerful mechanism for arbitrage across national financial markets as capital markets open up within them. CFO has to balance the traditional question with new questions which arises due to the globalization.
By exploiting their internal capital markets, CFO can create value in 3 functions: 1. Financing the internal capital market. 2. Managing Risk Globally, 3. Global Capital Budgeting.
1. Financing the internal capital market – A CFO can significantly reduce a groups overall tax bill by borrowing disproportionately in countries with high tax rates and lending the excess cash to operations in countries with lower rates. But the global CFO needs to be aware of downside of getting strategic about financing in these ways. Saddling the mangers of subsidiaries with debt can cloud their profit performance.
2. Managing Risk Globally – The existence of an internal capital market also broadens a firms Risk management options. Instead of managing all currency exposures through the financial market, global firm can offset natural currency exposures through their worldwide operations. Given this potential for minimizing risk, it might seem perverse that many multinationals let local subsidiaries and regions manage their risks separately. Doing so, however, can obscure the performance of local units, making it harder for headquarters to assess local managers and easier for financial managers to take purely speculative positions.
3. Global Capital Budgeting - CFOs can add value by getting smarter about valuing investment opportunities. But adopting a overly formal approach, in order to improve the quality of valuations, the gaming that takes place can undermine the company’s strategy. By adopting a narrowly financing approach lead to an outcome…...

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