Unformatted text preview: h American Free Trade Agreement (NAFTA) has moved
the economies of the United States, Canada, and Mexico much
closer together, and made them more interdependent.
U.S. bank regulations have been loosened dramatically. One key
deregulatory feature was the removal of interest rate ceilings, thus
allowing banks to attract foreign deposits by raising rates.
Another key feature was the removal of barriers to entry by foreign
banks, which resulted in more cross-border banking transactions.
Still, U.S. commercial and investment banks do not have as much
freedom as foreign banks, which has led many U.S. banks to
establish subsidiaries in Europe that can offer a wider range of
All this has increased global competition in the financial services
14 MNCs vs Domestic Financial Mgt 1. Different currency denominations-Cash flows in
various parts of a multinational corporate system will be
denominated in different currencies. Hence, an analysis of
exchange rates must be included in all financial analyses.
2. Economic and legal ramifications-Each country has its
own unique economic and legal systems, and these
differences can cause significant problems when a
corporation tries to coordinate and control its worldwide
For example, differences in tax laws among countries can
cause a given economic transaction to have strikingly
different after-tax consequences, depending on where the
15 MNCs vs DomesticFinancial Mgt Similarly, differences in legal systems of host nations, such
as the Common Law of Great Britain versus the French
Civil Law, complicate matters ranging from the simple
recording of business transactions to the role played by the
judiciary in resolving conflicts.
Such differences can restrict multinational corporations’
flexibility in deploying resources, and can even make
procedures that are required in one part of the company
illegal in another part.
These differences also make it difficult for executives
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