It examines exchange rate and political risks, evaluates Facebook's risk management strategies, and offers recommendations for effective risk mitigation in the global business environment.
Ph.D. Writers For Best Assistance
Plagiarism Free
No AI Generated Content
Native Assignment Help provides assignment help to assist students in research, writing and proofreading process.
In today's world businesses are highly connected whether national or international. All these businesses which deal in the international market are expanding and flourishing day by day since globalization was on track to become normal in the world. (Chalyuket. al. 2021). Multinational companies or MNCs are called a messenger of the progress of companies in other countries. A multinational corporation encourages the technological growth of the company and the country. There are various organizational advantages that highlight the importance of international business to become MNCs which are as follows:
For understanding more about the global environment and its impacts on multinational businesses and their working, the report is considering Facebook as the case company.
Facebook is an American social networking service whose parent company is Meta platforms, with headquarters in Menlo Park, California. The company was founded in 2004 by Mark Zuckerberg who was a student at Harvard University (Knautz, and S Katsiaryna, 2016). Facebook is the largest social media platform all across the world, with around 3 billion users according to 2021 data. The company earns most of its profits from advertisements on its websites as it is also used for advertisement purposes for various other companies (Brügger, 2015).
Figure.1 Facebook
Foreign direct investment has a very important role in economic development policy and the global business environment. There are so many companies all across the world that have established National Investment Promotion Agencies also known as IPAs which mandate to attract foreign direct investment. Foreign direct investment is also known as investment from one country to another country for growth and economic development (Jonesand Wren, 2016). In today's global environment by investing in FDI the international business and economic relations between countries and companies become strong, this kind of investment is mostly popular in developed countries. Company before investing in foreign countries look for the factors like Adequacy of cash flow, law and contract related to stability and enforcement, regulatory independence, control of investors over investment (Seid, 2018).
Figure.2 Facebook 5 year trends of revenue
The above figure 2 provides a detailed analysis of the 5-year trends of revenue. To maintain the segments of the business area Facebook covered the demographic age to acquire the smart acquisition by focusing on Instagram and WhatsApp. The total revenue earned from Instagram is of 1$billion and through WhatsApp is $16 billion. In 2021 the company generated $117.9 billion and $40.5 comes from its Facebook App.
There is a variability of decisions that governments take which affects individual businesses, the overall economy as well the industry. These effects include taxes, regulation, spending, and currency valuation, labour laws like the minimum wage, trade tariffs, and environmental regulations. Regulations regarding risk mitigation can be set at every level of government which also includes state and local, as well as federal laws and also in other countries.Exchange rate risk is a risk that an effect company’s operations and profitability by bringing change in the exchange rates between various currencies of countries. There are three types of risk produced by currency instability: transaction exposure, economic or operating exposure, and translation exposure (Lloyd, and Marin, 2019). The risks regarding operating exposure can be lightenedby applying currency risk mitigation techniques and operational strategies.
Exchange rate
In today's global market, exchange rate risk creates a great impact on multinational businesses as well as businesses that trade in international markets, and also on small and medium enterprises. The types of exchange rate risk are as follows:
Exchange rate risk fluctuation have both negative as well a positive effect on a company's market position. The currency rate and economy of the country are directly related to each other which refers to that the company has a great attraction of investors from overseas which also helps the economy of the country to become strong.
Political risk
Political risk refers to the return on investment which suffer due to political changes and instability in the country. Instability in a countryhas a great effect on investment returns which stem from a fluctuation in government, other foreign policymakers, legislative bodies, and military control in the country. Political risk is also called geopolitical risk. This political risk is also considered a type of jurisdiction risk.
The levels of political risk might be influenced by factors that are related to politics, like fund remittance control, host government expropriation, differences in cultural practices and government, and also onpolitical instability in the country (Kurosawaet. al. 2017). These outcomeshave a great impact on exposure to the political risk for the companies.
Standard deviation
Standard deviation is a popular indicator of volatility which measures oscillation of stocks in comparison average. Higher the volatility for the time period, greater will be the price variation during particular period. Below Figure 3 includes table and graph shows 10 years volatility measures of Facebook Inc.
Figure.3 10 years volatility measures of Facebook
year |
Volatility ($) |
2012 |
3.93 |
2013 |
10.60 |
2014 |
7.31 |
2015 |
10.19 |
2016 |
8.88 |
2017 |
17.34 |
2018 |
19.94 |
2019 |
16.02 |
2020 |
38.49 |
2021 |
34.78 |
2022 (as on 2022-06-27) |
49.11 |
In the current globalized world, various types of risks have the potential impact to affect the company, these risks are as follows:
Face book’s strategies regarding the management of risk which were discussed above are as follows:
Exchange rate risk
As discussed above Exchange rate risk is a risk that cannot be avoided in case of investment in foreign countries and FDI, but this risk could be mitigated significantlywith the use of various strategies that the company uses for mitigating the risk of exchange rate risk company opts for hedging techniques. This is the easiest solution for mitigating exchange rate risk in these investments is done in hedge funds such as hedged ETFs (Zhang et. al. 2020).
The forex risk is hedged by the fund manager of the hedged ETF at a relatively low cost. However, the company holding foreign-currency bonds or stocks, or even American depository receipts(ADRs) considers hedging exchange rate risk by use of the many paths available like currency, futures, forwards, ETFs, or options. This strategy helps the company to mitigate the risk involved in exchange rate fluctuation.
Political risk
The company’s political risk management strategies can safeguard and save time, and money, and alsostopdistressing business impacts. The company's strategy to mitigate political risk is as follows:
Risk management is defined as the classification, prioritization, and assessment of risks that occurred by cost-effective application to monitor and control the impact of uncertain impact on the company. Risk management protect and adds cost to the company's stakeholders by supporting the objectives of the organization. Effective risk management comprises a good risk management process and risk management structure(Hopkin, 2018).
The risk management policy of the company also play an important role during the global merger and acquisition of the company as it is known that Facebook's parent company is Meta, Meta also owns various other social networking sites like Instagram and WhatsApp and many other. In the case of mergers and acquisitions in global companies, there is a huge risk involved.
Global M&A activity has practiced the slowest quarter in Q3, 2022 from the pandemic in 2020. The collectiveagreement value for the quarter was $443B, a -50% which further decreased to Q2 and a -58% reduction compared to Q3 in 2021. the companies and investors are struggling tohandle the challenges which are global inflation and the effects of close-fitted financial conditions affecting the financing andglobal market volatility.
A company like Facebook needs to consider various risk assessment techniques which will assist the business to decreasethe risk and the company should also apply several risk mitigationtools and policies for overcoming the risk it faced. To create a good risk management policy company should consider the following points:
Conclusion
The report is made to demonstrate an outstanding knowledge of the company’s business, characteristics, reasons to become MNCs, 5-year trends in geographical location of turnover and profit by business segments and key changes that affect the company. The report also covered the sources of risks including exchange rate risk and political risk with evidence of strong critical thinking.
The key feature of the report is to develop ability for communicating information and articulate complex arguments, convincingly, to influence and persuade stakeholders.
References
Alexander Martin, 2019. Company Background. Facebook changes logo - to avoid confusion with Facebook. [Online]. Available through :<https://news.sky.com/story/facebook-changes-logo-to-avoid-confusion-with-facebook-11854673>. [Assessed on 5/11/2022].
Aven, T., 2017. How some types of risk assessments can support resilience analysis and management. Reliability Engineering & System Safety, 167, pp.536-543.
Brügger, N., 2015. A brief history of Facebook as a media text: The development of an empty structure. First Monday.
Chalyuk, Y., Dovhanyk, N., Kurbala, N., Komarova, K. and Kovalchuk, N., 2021. The digital economy in a global environment.
ClaireG, 2020. Facebook 5 year trends of revenue. Facebook: more than 98% of its revenue came from advertising in 2019 (Online). https://www.livre-marketingdigital.fr/revenus-facebook/ accessed on 08.11.2022.
Hopkin, P., 2018. Fundamentals of risk management: understanding, evaluating and implementing effective risk management. Kogan Page Publishers.
Jayashree, G. and Priya, I.C.M., 2019. An Empirical Study on the Various Risks in Foreign Exchange Market and its Impact in Global Business Transactions. International Journal of Trend in Scientific Research and Development, 5(3), pp.2613-2615.
Jones, J. and Wren, C., 2016. Foreign direct investment and the regional economy. Routledge.
Kezar, A.J. ed., 2020. Rethinking leadership in a complex, multicultural, and global environment: New concepts and models for higher education. Stylus Publishing, LLC.
Knautz, K. and S Katsiaryna, B., 2016. Facets of Facebook: Use and users (p. 339). de Gruyter.
Kurosawa, T., Forbes, N. and Wubs, B., 2017. Political risks and nationalism. In The Routledge companion to the makers of global business. Taylor & Francis.
Lloyd, S.P. and Marin, E.A., 2019. Exchange rate risk and business cycles.
Netcials, 2022. Facebook Inc Stock Volatility [Standard Deviation]. (Online). :<https://www.netcials.com/stock-volatility-nasdaq/FB-Facebook-Inc/>. (Accessed on 24.11.2022).
Pandya, S.S., 2016. Political economy of foreign direct investment: Globalized production in the twenty-first century. Annual Review of Political Science, 19(1), pp.455-475.
Seid, S., 2018. Global regulation of foreign direct investment. Routledge.
Soltanizadeh, S., Rasid, S.Z.A., Golshan, N.M. and Ismail, W.K.W., 2016. Business strategy, enterprise risk management and organizational performance. Management Research Review.
Tutor2u Limited, 2018. Exchange Rates - Macroeconomic Effects of Currency Fluctuations(Online). <https://www.tutor2u.net/economics/reference/exchange-rates-macroeconomic-effects-of-currency-fluctuations> accessed on 24.11.2022.
Yu, X., Zhang, W.G., Liu, Y.J., Wang, X. and Wang, C., 2020. Hedging the exchange rate risk for international portfolios. Mathematics and computers in simulation, 173, pp.85-104.
Go Through the Best and FREE Case Studies Written by Our Academic Experts!
Native Assignment Help. (2024). Retrieved from:
https://www.nativeassignmenthelp.co.uk/global-financial-strategy-case-studies-business-19375
Native Assignment Help, (2024),
https://www.nativeassignmenthelp.co.uk/global-financial-strategy-case-studies-business-19375
Native Assignment Help (2024) [Online]. Retrieved from:
https://www.nativeassignmenthelp.co.uk/global-financial-strategy-case-studies-business-19375
Native Assignment Help. (Native Assignment Help, 2024)
https://www.nativeassignmenthelp.co.uk/global-financial-strategy-case-studies-business-19375
Understanding Health And Social Care Practice - Reflective Account And Action...View or download
Chapter 1 Trust Native Assignment Help for all your academic needs. As a...View or download
Exploring Babylon Health's Innovative AI-Powered Digital Healthcare...View or download
Legal Environment Of Business Need assignment writing help in the UK? Native...View or download
Strategic Management - A Superdry Case Study Introduction - Strategic...View or download
An Insightful Look at Balfour Beatty's Management Structure and...View or download
Get your doubts & queries resolved anytime, anywhere.
Receive your order within the given deadline.
Get original assignments written from scratch.
Highly-qualified writers with unmatched writing skills.
We utilize cookies to customize your experience. By remaining on our website, you accept our use of cookies. View Detail
Hi! We're here to answer your questions! Send us message, and we'll reply via WhatsApp
Please enter a messagePleae enter your phone number and we'll contact you shortly via Whatsapp
We will contact with you as soon as possible on whatsapp.
Ph.D. Writers For Best Assistance
Plagiarism Free
No AI Generated Content
offer valid for limited time only*