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MNC is a multinational corporation that is a phenomenon closely linked with globalization. The numbers and size of these corporations have increased with the progress of globalization. The impressive economic growth of such corporations have given them not only economic, but also political power, thus making them a threat or a valuable alliance for states, and also in terms of economics for international corporations.
Adam Smith was an economic philosopher, who lived from 1723-1790. The central premise of his philosophy was that rational self-interest in a free-market economy was the best means of attaining economic well-being. For Smith, self-interest was a necessary component in one's feelings of benevolence toward others, and only in this kind of synthesis was it possible to be economically well.
David Ricardo (1772-1823) was another economist who focused on the rational side of economy. He pioneered a belief in the quantity theory of money, or monetarism, in that he blamed England's inflation on the issue of excess bank notes.
3) Absolute advantage entails an advantage without any comparison to other companies. There is no cost to such an advantage. Comparative advantage is an advantage compared to others. A certain company has a comparative advantage in its production of certain goods, while other companies have different comparative advantages as a result of a variety of differential elements.
4) The factors of production of goods or services are land, labor, and capital. All production is a combination of these elements to a greater or lesser extent. Land entails resources and raw materials, labor the human effort in production, and capital includes labor costs as well as the purchase costs of equipment or tools.
5) Mercantilism is a system that seeks to further the wealth and power of the state by means of economic nationalism. Dominating economic thought in Europe roughly from the sixteenth to eighteenth centuries, this is a system by which imports were restrained and exports encouraged. Free trade on the other hand encourages both imports and exports, with the premise that international specialization of labor results in economic well-being for all involved.
6) Communism seeks to eradicate international control of production by nationalizing corporations. In this way control is moved to the national level, which also centralizes planning for production. Capitalism is more focused on economic growth than the nationalism advocated by communism. Growth is focused on a continual increase of quality in production.
7) The theory of regulated capitalism may comprise a variety of views. Economic regulation could for example be seen as emphasizing the market-making role of regulation. On the other hand there could also be a type of regulation through market correcting that entails social-democratic goals. In practice it depends upon the particular circumstances and perceived needs of the economy.
8) The government in its role as regulator imposes laws that constrain market practices such as inflated pricing as a result of lack of competition. An example of this is the antitrust law, imposed to keep consumer prices at their lowest possible level. The government as arbitrator is more self-serving than the above. When a government arbitrates, it seeks to further its own interest by taking advantage of people's ignorance of the law.
9) Through its fiscal policy, the government manipulates its budget in order to affect the economy. This is usually done through changing or adding to issues such as tax laws. The U.S. monetary policy is dictated by the Federal Reserve Bank. The focus of this policy is to promote a maximum of employment opportunities, while ensuring stable prices.
10) Command economies are directed by a government that is centralized. This kind of economy, while best serving the government, does not sustain economic growth. Market economies, on the other hand, rely on private enterprise. In this way the economy is decentralized, while providing opportunities for economic growth to a larger amount of people.
11) GNP, or gross national product, includes the value of goods and services produced locally within a year, together with what is earned by citizens working abroad, minus what is earned by foreigners working domestically. In short, GNP is everything earned by legal citizens of a country within a year, regardless of where these earnings are accumulated.
GDP is gross domestic product, which includes a variety of sub-components. It entails earnings gathered by all persons within the borders of a country, regardless of whether these persons are legal citizens or not.
12) The balance of payments records…[continue]
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Acquiring ownership of a foreign company exposes the MNC to a wide range of factors and risks, including political risk, operational risk and more. Each of these risks carries costs or potential costs that will impact the profitability of the project. Another risk that the finance department must consider when expanding internationally is foreign currency risk (BNet, 2010). There are two sides to foreign currency risk -- transactional and translational.
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