FIN370 wk5 team b - 1 Globalization The continued trend of...

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Globalization The continued trend of globalization is sought by organizations in an attempt to access more lucrative markets for both products and labor. As with any promise of increased profit, comes the potential for increased risk. “While the basic principles of domestic financial management and international financial management are basically the same, international financial management is more challenging and dynamic because it must consider a wider range of possibilities, opportunities and challenges than purely domestic.”(Khosrow, 1993) Potential problems to a financial manager can be (but not limited to); Accounting practices, political factors, taxation, regulations, and exchange rates. These can be collectively grouped into National financial systems known as the international financial architecture (IFA).”(World bank, 2002”) Accounting Practices Domestically, accounting practices are typically regulated by the Generally Accepted Accouting Practices (GAAP). There is an international equivalent. The differences in these standards causes problems. Adding to this is that many emerging markets are not part of these organizations. This can lead to discrepancies between reports that appear similar, but vastly different due to the practices applied. A financial manager must look at these reports carefully, along with the collection methods in order to compare apples to apples. Political factors Part of financial management involves carefully considering risks. As an organization increases investment in a developing nation, political factors must be 1
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considered. An excellent example of this is Venezuelan President Hugo Chavez nationalizing the last privately run oil fields in the country. “The government is taking over four oil projects run by some of the world's biggest petroleum companies.) (NPR, 2007). This led to Exxon losing a large amount of its investments in the country.
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