Financial Management of MNC in Monetary Union

Article excerpt

JEL D00. D21 E42

Literature on multinational corporation's activity already features cost and benefit analysis of intra-corporate financial management and reveals the main methods of hedging the risk that appears due to the economic conditions of home and host countries. Relations between the MNC and the host country changes along with the evolution of the MNC's strategies and the host country's political reforms. One factor affecting such relations is the participation of the host country in regional integration initiatives that directly impact independence from domestic economic policies. Adhering to the opinion that the activities of a MNC depend on economic and legal conditions in home and host countries, the MNC financial management concerns such fields as: tax planning, cross-border investment and liability, dividend policy and transfer pricing. The monetary union of host countries challenges the financial management of a MNC to adapt its intra-corporate finance to the terms of this kind of specific economic conditions. The impact of monetary integration on a MNC's financial strategies is investigated on the example of the Gulf Cooperation Council Monetary Union (GCCMU).

To hedge risks that result from different economic conditions of host-countries, the MNC applies different methods (organizational and economic) of doing business across borders.

In the case of Monetary Union among host-countries (as in the GCC example), those risks are eliminated: exchange rate risk is minimized, taxation is low and simplified, customs are mostly eliminated, fiscal policy is coordinated, inflation is controlled, and there is no need for specific methods of financial manipulation. …