GLOBAL BUSINESS MANAGEMENT

Global Business Management

Global Business Management

Introduction

Globalization is the increasing integration of economies around the world, particularly through trade or financial flows. Globalization includes the practice of managing businesses in foreign countries. Over time, this practice has become more common due to technological advances and decreased trade barriers. (Schuler, Dowling, Cieri 2003)Globalization permits businesses to reach much larger markets. Globalization allows businesses access to more capital flows, technology, cheaper imports, and larger export markets. While globalization brings about many great opportunities, it also carries the burden of increased financial risk.

Discussion

One of the biggest financial risks of managing in foreign markets is the exchange rate. The foreign exchange rate is the rate of currency exchange, meaning one country's currency is traded for another's. The foreign exchange rate is expressed in two ways. (Milliman, Glinow, Nathan 2001)Most commonly, it is expressed in the amount of currency required to buy one U.S. dollar. Or it can be expressed conversely, by how much a U.S. dollar can be exchanged for a foreign currency. This is an important risk in financial management because in order for corporations to invest or purchase globally, they may need to use the necessary foreign currency.

Another risk factor that affects globalization, particularly in international management, is foreign interest rates. When investing, corporations want the highest interest rate. The global market with the best rate may receive the most investing. Also, foreign interest rates have a distinct impact on foreign exchange rates. (McMahan 2002)When managing in foreign markets, the organization must take into consideration the necessary accounting methods. These methods are affected by foreign exchange rates and foreign interest rates. Normally, when a corporation performs business transactions in foreign countries, accounting is done in U.S. dollars. Proper accounting methods must be followed when either conducting foreign currency transactions, including ...