Discussion of Interest Rate Risks of Multinational Corporations and Managing Interest Rate Risks

Discussion of Interest Rate Risks of Multinational Corporations and Managing Interest Rate Risks

Interest rate risk is the risk that is relative value of security means if the interest rate of the security increases it will adversely affect the value of securities portfolio . For e .g . Banks that lend short term can hedge against the risk of an increase in interest rates by taking an offsetting short position in financial futures . Multi National Corporations are affected by multiple of factors which are directly related to interest arte risk such as exchange

rates , differential rate of inflation , national exchange controls , taxation code etc . However subsidiaries companies operating in the other countries provide adequate support under the conditions of high interest risk . The other aspect of interest rate risk is also seen bank 's financial statements because as the bank rates rise of falls it affects the working of banks and institutions . This interest rate risk is volatile in recent years as previously long term investment regarded as safe investment but the situation is no more . Hence , MNC 's should invest their funds after the deep study , measuring the risks involved in investment , return on investment etc . because all the above decision is directly related to the interest rate risk which may adversely affect the revenue of the company . Inflation play a crucial role in front of MNC 's because it increases the risk in form of reduction in value of investment returns Inflation affects all aspects of the economy , from consumer spending business investment , employment rates , tax policies and interest rates Technology stocks particularly run the risk of high volatility , high valuation and obsolescence . Companies are also affected by several factors such as changes in market , interest rates , performance of individual stocks , changes in credit rating , trading volumes settlements periods and transfer procedures . It is also affected by the price rate Risk , Government policy , volatility and liquidity in the money markets and pressure on the exchange rate of the Rupee , basis risk and bear reinvestment risk

Management of Interest Rates by Multi National Corporations

Interest rate exposure ' means clear picture of risk involved in the investment with the change in the interest rates . There are various methods for protection against variation in interest rates risks such as by way of hedging , futures and forward markets , by adopting floating rates facilities and using risk management such as swaps and options .Due to the growth of financial market of there has been noticed excess volatility in the instruments traded in these markets and interest rates . These markets are the gateway through which these Multi National Companies shall enter into any economy so they are vastly affected . The companies by adopting hedging strategies with interest rate swaps and derivatives can reduce the interest are risk . Earlier companies used to bear high risk at the cost of doing business but at present they don 't accept risk only to initiate the business because various protections is also provided to companies . The banks and financial institutions...