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Question: Explain why an MNC may invest funds in a financial market outside its own country.

04 Oct 2022,2:06 PM

 

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.

Expert answer

 

There are many reasons why an MNC may choose to invest funds in a financial market outside its own country. One reason may be to diversify its investment portfolio and reduce risks. By investing in multiple markets, the company can spread out its risks and potentially earn higher returns.

 

Another reason an MNC may choose to invest in a foreign market is because it offers higher growth potential than the company's home market. In some cases, the MNC may be seeking to enter a new market and expand its operations. By investing in the foreign market, the company can gain a foothold and begin to establish itself as a presence in that market.

 

In other cases, an MNC may simply believe that the foreign market presents a more favorable investment opportunity than the home market. This could be due to a variety of factors, such as lower taxes, less regulation, or simply higher returns. Whatever the reason, if an MNC believes that it can earn higher profits by investing in a foreign market, it will likely do so.

 

There are many reasons why an MNC might choose to invest funds in a financial market outside its own country. The most common reasons include diversification, expansion, and higher potential returns. By carefully considering all of these factors, an MNC can make the best decision for its business and maximize its chances for success.

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