Financial Management Individual Work 1 Week 10 Essay

Financial Management Individual Work 1 Week 10 - Essay Example Multinational firms experience economies of scale as part of their financial strategies. This relates to the advantages that accrue to a firm as a result of large-scale production. The large volume of the units produced by the firms, result in a decrease in the cost of producing each individual product. Through the process of rationalization, multinational corporations are able to achieve the advantages of worldwide integration as they are able to manage their resources adequately. It further allows subsidiary firms to adapt to the specific product needs and financial requirements of the countries in which they operate such as taxation and other business regulations. The subsidiaries are encouraged to operate as national firms through compliance with the specific needs of the nations in which they are located but retaining some advantages such as sharing of financial risks with their affiliated firm. Another advantage of economies of scale is that it reduces the cost of raw materials as well as other overhead costs which lead to huge profits in the long-run (Ogilvie, 2006). World-wide integration strategy allows multinational firms to develop standardized products which bear global appeal thus are able to generate huge profits owing to the fact that they are generally accepted and preferred by many people. Multinational firms can be adversely affected by the regulations imposed by banking institutions operating globally. Such challenges may be due to liquidity problems and interest rates. As a result, financial managers of the multinational firms must consider the cost of accessing loans in their countries of operation as well as investment opportunities available in those countries. They prefer operating in countries in which the banking sector is subject to international policies which have been set up by the International Monetary Fund. The domestic firms are in direct