Initial question:

If you are the CFO of a multinational company. What steps could you take to minimize international risk? Describe how cash flows are used to minimize political risk.

Reply or comment on this:

Here are 5 things that the CFO can do in a multinational company to minimize international risk; take the time to get to know the other party, start slow, do your homework, use secure payment methods, and establish a meaningful relationship. (National Bank, 2017) As a multinational company, it is not good to assume that you could sell the same good in the Europe with the same methods that you use in the US. These 5 things are great steps to take seriously and develop over time, international trade takes time to build relationships and research for the targeted area.

To understand how cash flows are used to minimize political risk, it is important to first properly asses the political risks and their potential to impact the company. A Discounted Cash Flow (DCF) is a great tool to use to estimate the financial effects of political risks. In a company that has sufficient cash flows, it is smart to invest where the effects of political risks are low. The company can also increase the cash flow from operating activities to counter the impact of political risk.

References:

National Bank. (2017, November 2). 5 things you can do to reduce international business risk. Retrieved from https://ideas.nationalbank.ca/five-things-you-can-do-to-reduce-international-business-risk/

Trade Ready. (2016, September 9). These 5 factors will change the way you manage your cash flow – Trade Ready. Retrieved from http://www.tradeready.ca/2016/topics/international-trade-finance/5-factors-will-change-way-manage-your-cash-flow/