A Model of International Company that Trades with Lubricants Term Paper

A Model of International Company that Trades with Lubricants - Term Paper Example A multinational company is a company that conducts its trade between two or more countries. To conduct the business, a set of rules and regulation are laid down by international organizations and the countries where these organization conduct business. One common effect is the fluctuation of different currencies. The volatility affects the profitability of international trade. Also due to the currency volatility, there is a very high probability of the traders incurring loses on future sales. The formation of any multinational company is rigorous and most of the companies are run as joint ventures, mergers between two companies, private limited companies, public limited companies, licensing agreements among others. Corporate finance deals with the making of an appropriate financial decision for the company. These decisions are made using analytical tools. These tools help in the maximization of corporate value and in the management of the firm's financial risks. The decision made may be classified as short term or long term. Long term decisions involve capital investments decisions while short term decisions involve managing the working capital. Financial risk management, aids in evaluations of risks and developing strategies to manage these risks. In risk evaluation, the nature of the risk is determined by evaluating the impact of the exchange fluctuation on the corporation and the nature of the currency one is trading with. Risks can be managed/hedged using financial instruments. These instruments include interest rates, commodity prices, stock prices, and foreign exchange rates. The most effective way to manage financial risk is by the use of derivatives that trade on the financial markets. These derivatives are traded using instruments such as futures contract, Forwards contracts, swaps, and options.