International Investments, Risks, and Ethical Issues

INTERNATIONAL INVESTMENTS, RISKS, AND ETHICAL ISSUESByInstitution
International Investments, Risks, and Ethical Issues
Investing in international markets pose several challenges to multinational companies, and require difficult strategies to compete favorably. The American International Group has several branches in many countries. It has implemented specific financial and investment strategies to be successful. It is imperative to know how it manages its corporate finance, how it implements the Modern Portfolio theory, the financial risks, and ethical issues it faces in international set up. This is an in-depth descriptive of such factors and their impact to a multinational.
Role of Corporate Finance
The American International Group has several competitors in the insurance field, who invests heavily in customer relations and strategic planning to get ahead. This poses a challenge to the company in terms of competitiveness, in addition to being profitable to the investors and shareholders. Corporate finance involves short term and long-term plans meant to increase shareholder value and the profitability of a corporation through several financial decisions. The company makes investment decisions, manages current liabilities, current assets, and inventory control through decision made by corporate finance department. Through capital budgeting, the corporate finance department can use the corporation’s long-term capital to make capital investments meant to expand the company, or acquire new assets (Kono & Barnes, 2010).
Capital budgeting enables the corporation to analyze an investment in terms of its viability, estimated cash flow, profits in comparison to investment, and the best project to invest in (Kono & Barnes, 2010). A corporation is able to accomplish this by using the corporation’s equity or by sourcing out finance through borrowing from financial institutions, selling stocks, or by issuance of debt securities (Shahnazi & Azadi, 2015). Corporate finance also touches the daily operation of the corporation to ensure there is enough short term liquidity that can sustain everyday operations. Therefore, managers invest in short-term equities to ensure there is enough cash flow through balancing of current assets and liabilities. Additionally, multinational corporations like American International Group with branches in over 130 require customizing business operations within each country, and performing proper utilization of resources to reduce tax burden implications. Princen (2012) argues that cross border transfer of assets by multinationals result in double taxation, counterbalanced through capital finance by consolidating and apportioning tax to several entities.
Modern Portfolio Theory
The theory suggests that risk-averse investors can create portfolios that can grant them maximum return on investment on a certain level of risk. The theory suggested by Harry Markowitz in 1952 uses statistics to describe an investments long-term return and its short-term volatility. The theory also suggests that investors spread their risks through multiple investments with different levels of risks and returns instead of majoring on one portfolio (Fabozzi, Gupter, & Markowitz, 2002). This is the separa...