Would you prefer to buy a business inside or outside the European Union? Why?
I won’t look to buy a business inside the European Union. The Eurozone crisis, a serious financial catastrophe, is now affecting the European Union. Several issues have arisen as a result of the European Union. Political unrest results from the changing of governments, and there is a good chance that financial instability will follow. For instance, banks in Cyprus are not operating. Assets must be secured, and a firm must be able to continue operating for it to be bought. Assets of businesses and individuals are frozen in the EU. For instance, the value of buying a firm is diminished if the company cannot withdraw money from the bank. Similarly, if a company cannot conduct regular financial transactions due to the European Sovereign debt crisis, it will be unable to continue operating. Avoid buying a business in the European Union, it is advised.
There are other nations where these issues do not exist. For instance, a business might be bought in Brazil, with a strong currency, a 4.1% annual GDP growth rate, and a stable financial system.
Explain the benefits and drawbacks of the decision you made.
The fact that Brazil is a regional economic power is a benefit of buying a business there. It has a large industrial base, natural resources, minerals, and energy. Both the economy and the local market are expanding steadily. Brazil was chosen due to its low inflation rate, tax exemptions, and high level of consumer confidence. There is internal growth, a sizable economy, and first-rate infrastructure.
The option’s drawbacks are its high bureaucracy, unstable political climate, and swift business environment change. The lengthy and challenging legal process is another drawback. A small percentage of the population has higher education, and the general level of education is not very high.
Describe the justifications for MNC investments in financial markets other than their own.
An MNC may invest money in a financial market outside of its own nation to take advantage of a better investment opportunity. In a global market outside of its home nation, the MNC may see more lucrative or secure chances. The possibility of a financial crisis or a sluggish economic recovery in the home nation is the second factor. Hence, a poor domestic economy may motivate the MNC to make investments abroad. The MNC may also elect to invest in a financial market outside of its home country if depressing economic circumstances exist. The MNC may elect to participate in the international financial market if the domestic stock market is unstable, the domestic currency is projected to decline, or the domestic economy has a significant budget deficit. Several MNCs choose to invest in nations where the local currency is most likely to increase. A major draw for MNCs to participate in foreign financial markets is the possibility of higher profits.
Describe the reasons why certain financial organizations seek to extend loans on markets other than their own.
Because they receive higher rates of return abroad than they do at home, financial institutions favor offering credit in those markets. The interest rates in their countries financial markets may decrease due to government regulations and competition from other financial organizations. For instance, the Federal Reserve’s extremely low discount rates in the US lower interest rates overall, including long-term interest rates. Financial organizations lend through their foreign branches in nations where interest rates are higher if they wish to earn a higher interest rate. The financial institution pays a higher rate of interest for this loan (providing credit). The institution becomes more profitable. If the amount of money available on the housing market is quite high, it is seen from a different angle. For instance, the Fed in the US makes sure that there is a high level of liquidity among banks, which lowers the interest rates at which banks can lend in the country. Financial organizations look for markets with a limited supply of capital.
Financial institutions can now offer credit in nations with high-interest rates and high levels of financial stability because of the globalization of financial markets.
Globalization – The Juggernaut of the 21st Century Jan-Erik Lane Ashgate Publishing, Ltd., 2013
Globalization and Social Change: People and Places in a Divided World Diane Perrons Routledge, 2013
The Limits of Globalization Alan Scott Routledge, 2013
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The most popular way for international expansion is for a local firm to acquire foreign companies. One of the most benefits for international expansion is global distribution capability that helps expanding the market share.
There are different implications of running a company that is within or outside of the European Union. If you were the head of a firm based in the United States, please answer the following questions, providing the rationale behind your answers:
- Would you seek to acquire a company within the European Union or outside of it? Why?
- Describe the advantages and disadvantages of the choice you made.
- Describe the advantages and disadvantages inherent in the option you did not choose.
- Explain why an MNC may invest funds in a financial market outside its own country.
- Explain why some financial institutions prefer to provide credit in financial markets outside their own country.
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