INTERNATIONAL FINANCE

International Finance



International Finance

General Electric Company (GE)

General Electric Company, or GE, was incorporated in 1892 and is publicly traded on the New York Stock Exchange. General Electric Co. is headquartered in Fairfield, CT. The company is a diversified technology, media, and financial services corporation. Business segments include infrastructure, commercial finance, GE Money, healthcare, NBC Universal and industrial. Infrastructure is the largest business segment. Through this segment, General Electric helps to develop the infrastructure of developing countries worldwide. This includes aviation, energy, oil and gas, transportation and water. Through commercial finance and GE Money, the company provides financial services to both businesses and consumers. General Electric brands are Monogram, GE Profile, GE and Hotpoint. General Electric also owns or holds licenses to several patents for their inventions.



Risks of Foreign Currency Exposures

General Electric now intends to expand its operations to Iran. The problems it may face there are discussed below:

Multinational corporations are primarily engaged in international trade, direct foreign investments and international arrangements. MNC's also have foreign subsidiaries. There can be cash flows from MNC to finance the operations of foreign subsidiaries and cash flows from foreign subsidiaries to parent in the form of earnings. MNC generally have cash outflows when they pay for imports and expand businesses in foreign countries. They have cash inflows when they receive payments for its exports, payment for services provided in foreign countries and earnings form subsidiaries. Therefore, multinational corporations are involved in foreign exchange to do its operations. The MNC's are exposed to exchange rate risk because the exchange rates fluctuate over time. The level and volatility of exchange rate can have a significant effect on investment of firm. The impact of currency movements are expected to vary across MNC due to different locations and different operations. The Corporation should make decisions in order to take advantage form currency fluctuations while mitigating the exchange rate risk (Chen, 2007).

Currency Fluctuation

Each country has its own currency through which national and international transactions are conducted. All international transactions involve the exchange of one currency against another. The difference or change between the values of the currency of a country is called currency fluctuation. Currency fluctuations happen on a daily basis and affect the relative velocity between currencies on a regular basis. Since exchange rates change constantly, so companies are exposed to exchange rate fluctuations. Therefore, assets or liability or the company's cash flows, which is denominated in foreign currencies, change their value over time. This variability in the value of the assets or liabilities, or cash flow refers to the exchange rate risk.

Significance of Foreign Exchange Risks

The exchange rate exposure is the degree to which an MNC is affected by exchange rates fluctuations. Exchange rate movements effects MNC with its subsidiaries in foreign countries and its international trading. The impact of exchange rate movements on a firm value is determined by the firm's net position in foreign currency. The firm can gain or loss when currency appreciates or depreciates (Mustafa, ...