Page 1 of 8
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 186
Depiction Of Preference For Internationalization Of
Finance Minds.
Solomon Arhin
Position : Lecturer , Institutional Affiliation: Christian Service University College,P.O.BOX
3110,Kumasi,Ghana.
Email: solomonarhin@yahoo.com
ABSTRACT
The evidence for both the local and international investors actions are believed to be linked to their preference for matters of international concern and the
particular focus group of investors in question. These potential investors can be very diverse. This research study aims at depicting the responses of seventy-Two
finance professionals who have worked for different international and local companies in Ghana. It is a quantitative analysis which was done by the use of
questionnaire to assess professionals mind on important areas of international finance specifically on exchange rate changes and its effect on multinational
restructuring. The population for the study was the finance professionals working in the study area of Santasi where the study was conducted in Kumasi, and a
simple random sampling method was adopted .A sample size of seventy-two Finance professionals were selected and asked to respond to the questionnaire
independently. The responses received were analyzed through descriptive statistics in the form of percentages, mean score , standard deviation statistical pie
charts and line diagrams. The results of the study indicate that greater number of the Finance professionals have high preference for international subjects on
exchange rate and multinational restructuring. The study concluded that foreign financial factors are impinging on the performance of local firms. Based on the
results, the study recommends that future researchers can organize training courses on exchange rate for local managers on what actions to take in case of
unexpected changes in exchange rate to restructure their subsidiaries.
Index items: Restructuring, Multinational, professional, depiction, international.
1. 0 INTRODUCTION
Knowledge of international finance on exchange rate and multinational
restructuring is vital to the well-being of the Ghanaian economy. Any
professional who aspires to progress on international issues must have a
thorough understanding of the principles involved in international finance.
Lending managers in domestic branches often deal with propositions which
involve some aspects of international business. Those managers who have a
sound grasp of that aspect from international finance are able to deal
confidently with such lending propositions, and are able to cross sell
relevant international services. International finance refers to the activities
of providing financial services to clients (both institutional and individual)
located in many different countries. This encompasses a wide range of
activities, including transactions with foreigners and domestic residents
relating to deposits and lending in domestic and foreign currencies,
facilitating foreign currency transactions and foreign exchange risk hedging,
participating in international loan syndications, and facilitating international
trade finance for clients. This research deals with the changes in exchange
rate and their effect on multinational companies in the aspect of
restructuring. Johansson (2007) stated that fluctuating exchange rates will
routinely create problems with revenues and prices in a foreign market and
can powerfully affect the performance of local subsidiaries. Johansson
statement has been affecting many international companies in Ghana
because fluctuating exchange rate has been the problem of many countries.
A particularly potent threat is the chance of government devaluation. It is on
this basis that this research is being done to assess the mind of the finance
professionals in the Santasi area of Kumasi, Ghana.
1.1 Research Background
Fischer (2001) mentioned that each of the major international crises since
1994—Mexico in 1994; Thailand, Indonesia, and Korea in 1997; and Russia
and Brazil in 1998 has in some way involved soft-pegged exchange rate
regimes .These exchange rates will routinely create problems with revenues
and prices in a foreign market and can powerfully affect the performance of
local subsidiaries. Companies normally exchange one currency for another
through a commercial bank over telecommunications network or through
spot market. When the foreign exchange rate opens in the developed
countries such as United States each morning, the opening exchange rate
quotations are based on the prevailing rates quoted by banks in London and
other locations where the foreign exchange markets have opened earlier.
News occurring in the morning before the US market opens could have
changed supply and demand of British pound reducing the price for the
pound. This implies that the problem of exchange rate is not dictated by
only internal factors but external factors from the international market
because of this, multinational companies operating in different nations of the
world can hardly manage to make expected gains. Many international
companies have incurred losses due to the episode of globalization.
Globalization is not an immutable economic force but it brings about
financial integration for companies operating internationally. Therefore,
managers are always under pressure to find out what is happening in the
international financial markets. Their preference very often moves to the
events of international markets in order to maintain consistent performance.
1.2 Statement of the problem
In addition to the problem of exchange rate affecting multinational
companies as stated by Johansson (2007) and Fischer(2001) ,it is also
observed that International financial markets has influenced not only the
business around the world but countries as well. Government of various
countries uses their influence to reduce exchange rate fluctuations and
advocate fixed rate exchange system with the motive of stability. Today, the
exchange rate is not fixed because in some developed countries one day
transaction is larger than some countries so government cannot influence as
years before. Government of the affected poor countries also do not want to
face the consequences of protecting the value of currency with increasing
interest rate and unemployment and therefore adopt various financial
strategies to protect their currency .Jorion(1990) posit that exchange rates is
a major source of uncertainty for multinationals being typically four times
as volatile as interest rates and ten times as volatile as inflation. Steiner and
steiner (2009) also stressed that multinational corporations are critical
source of capital for less developed economies. When a giant multinational
corporation invests heavily in poor country, the effects can ripple through its
economy and create jobs, taxes, and new prosperity. However, the problem
remains where multinational companies have to restructure or move away
from developed countries due to problems of exchange rate fluctuations that
lead to huge losses being posted in the financial statements of the subsidiary.
Some of the developed countries have their currencies very depreciated to
about four or five times compare to a dollar, pounds or euros. Companies
operating in such developed countries such as Ghana are always seen as
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Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 187
underperforming in terms of profitability. Due to this facts many financial
managers tends to prefer international financial issues that brings common
but universal solutions to their problems at both the parent and the
subsidiary level.
1.3 Purpose of the study
The purpose of this research is to measure the extent of Finance managers’
choice of preference for international financial matters from different
individuals in Ghana. Most people believe that local factors are putting
pressure on the international markets while many believe otherwise.
Experience finance professionals portray a large array of foreign preference
and believe that foreign factors have greater impact on local performance
therefore affecting local performances in the organization. The purpose of
this research is to measure the extent of the respondents’ level of preference
on the key issues of international finance on exchange rate changes on
multinational restructuring. Multinational corporations suffer frequently
from exchange rate fluctuations which affect their operations such as , loss
of employee confident and loyalty to the companies leading to high
turnover . Zdaniuk and Levine (2001) found out that at the local level
,loyalty was manifested by staying in the group and dishonesty was
manifested by leaving. Capelli(2000) and others have argued that
professionals tend to have more loyalty to their immediate workgroup in
local matters even than to their employing organization in the international
arena.
1.4 Research objectives
The objectives of this research are to assess the following:
i). Asses the level of manager’s preference for international finance in
exchange rate and multinational restructuring.
ii) Identify the local factors that contribute to increase trend of preference
for international finance.
iii). Compare the level of opinions on the level of preference on both the
local and international financial markets on exchange rate.
1.5 Research Questions
The research questions for the study are as follows:
i.) What are the main factors that influences the financial managers’
preference for financial matters.
ii). What are the underlying local factors that cause financial managers to
prefer international financial matters.
iii).What are the reasons why these local factors opposed international firms
and why are they impinging on local performance.
iv). How well can these factors provide a reasonable basis for comparison
for future research?
1.6 The significance of the study
The significant of this study is to bridge gap on academic research on
international finance for professionals while encouraging its citation in
academic literature at both local and international level. Many problems
faced by multinational corporations are as a result of failure of many of the
managers’ preference for international issues as opposed to local matters
which contribute to low profit margin. This research assesses candid
opinion on professionals’ mind on why firms suffer from exchange rate
fluctuations and to assess the level of preference on international issues
among finance professionals in the Santasi area of Kumasi.
1.7 The scope and Limitation of the study
The research focuses more on the issues of international arena for
multinational corporations which are operating in different countries
experiencing exchange rate fluctuations and restructuring problems. This
research is not related to any specific company in any particular country and
this might be limitation to this research. Although the scope is limited to
Ghana within the selected sample in the Santasi area, however, the findings
can be applied to many companies in different countries around the world
which are operating with different subsidiaries and experiencing financial
restructuring as a result of exchange rate fluctuations.
2.0 Literature Review
2.1 Introduction
The literature review for the study covers the introduction to the
conceptual framework on the exchange rate risk and definitions of key
terms related to exchange rates. Many authors have different perceptions
about international finance and preference for changes happening on the
international exchange markets. Some of the key terms used in the study
related to finance which have been defined. The related studies also give a
background on the history of international finance as a process and its
associated pros and cons and why Multinational corporations decide to
locate in overseas countries.
2.2 Framework of Exchange rate risk management
Madura and Fox (2007), on international financial management stated that the summary of the exchange rate risk management can be depicted pictorially.
Adapted and drawn to suit the research study
Rajagopalan, Rasheed and Datta (1993) noted that the absence of such
integrative models has resulted in process research remaining
fragmented, characterized by limited theory building and empirical
testing. Managing exchange rate risk in multinational companies is a
very heavy task to international financial experts. Information on
economic conditions of various countries is collected with their
respective exchange rates on one hand so that firms can compete
among each other. Chen(1996) provides a framework for considering
how diversified firms might attack and defend against each other. On
the other hand, anticipated cash flow are measured with its exchange
rate exposures to assess how the exposure can affect forecasting
exchange rate to suggest which hedging technique strategy to be used to
manage risk because Teresa(1991) said, the use of risky debt, in turn,
may lead to underinvestment which create conditions for continuing
poor performance. The framework above depicts that while information
on existing economic conditions can be used to forecast exchange rate
of various countries, information on existing and expected cash flow
can be used to measure the exposure to exchange rate fluctuations so
Information on existing economic
conditions in Ghana affecting
Kumasi or the study area.
Information on existing and anticipated cash
flows in each currency in Ghana or study area
in Kumasi.
Forecasting Exchange Rate
Measuring exposure to
exchange rate fluctuations.
Managing exposure to
exchange rate movement.
How exposure will affect the
cash flows of the study area
in Kumasi based on
forecasted exchange rate.
Whether to hedge any of the
exposure and which hedging
technique to use.
Page 3 of 8
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 12
November 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 188
that multinational firms can reduce the level of exposure to these risks
in different countries.
2.3 Definition of Terms
The key terms in the research article are :
Exchange Rate – Rate at which one currency may be converted into another.
The exchange rate is used when simply converting one currency to another
such as for the purposes of travel to another country or for engaging in
speculation or trading in foreign exchange market.
Exchange rate fluctuations: Exchange Rate fluctuation is simply the rise and
fall in the value of one currency against another. Exchange rates fluctuate
every second, and these movements are generally caused by things such as
Economic Data, Political Data, Natural Disasters and acts of war etc.
International Finance-This deals with studying global capital markets and
involves monitoring movements in foreign exchange rates, global investments
flows and cross border practices.
Multinational Restructuring –This may involve debt consolidation, changes to
the size of the organization or the scale of operations in order to prevent
bankruptcy.
2.4 Measurement of variables
Foreign currency markets measure the level of changes in the exchange rate
fluctuations. In the Developed countries, Currencies are traded on the
currency exchanged markets. Currencies such US dollar, Japanese Yen,
pound sterling’s and Euro etc. are traded on international currency market
and an appreciation or the depreciation of their values after a day’s
transaction can be measured. However, currencies from most of the
developing countries are not internationally convertible and are not traded
on international market. Ghana Cedi, Nigerian Naira and many of the
currencies in Africa are not traded in the international currency markets. The
measurement of changes can often times be measured by using pegged
exchanged rate system where a unit of the currency is pegged against a
multiple of a unit of international currency traded on the international markets
to assess whether local currency is appreciating or depreciating. In the context
of this research, no specific currency measurement was assumed in the
questionnaire, however, the finance professionals in the study area of Santasi
were requested to provide their candid opinion on the questionnaire on
exchange rate and their effect on multinational firms in order to achieve the
research objectives. These responses received were analyzed through
descriptive statistics in the form of percentages, mean score , standard
deviation , statistical pie charts and line diagrams to provide solutions to the
research objectives.
2.5 Related studies on tracing the History of international finance
Actually, key changes in banking occurred since the 1800s. Some authors
call the rise from 1860 to 1914 "the First Age of Globalization," in which
increasing connectivity between nations brought about "large-scale capital
investments (such as in railways), a deepening of global finance, and
expanded prosperity." The start of the First World War brought all to a
halt. World War I marks the onset of the second period—what economists
call ―The Great Reversal of 1914 through 1939.‖
This period is characterized by financial collapse and the Great Depression.
They forcefully argue that this episode shows that globalization is not an
immutable economic force, and a backlash against it can be disastrous.
Indeed, financial integration again collapsed with World War II and
recovered slowly thereafter. Recognizing the importance of avoiding the
mistakes of the interwar period, the Allies met in Bretton Woods, New
Hampshire, in 1944 to create institutions to oversee the repair of the
international financial system and to ensure trade and recovery among
nations. This effort gave rise to the International Monetary Fund and the
World Bank, and in 1947 to the General Agreement on Tariffs and Trade (in
Geneva), which evolved into the World Trade Organization. The policy focus
of these organizations was institution-building, recovery, and the financing of
at least temporary balance of payment difficulties that arose at the sovereign
level. The last period ―Second Age of Globalization "spans roughly 1960
through the end of the twentieth century. The era is characterized by intense
financial integration. Therefore, financial integration has been a major policy
in many financial managers of today’s multinational corporations. Most of
them have single financial policy that integrate all subsidiaries operations in
different countries which allow decentralization to facilitate easy payment to
contractors and outsourcing of jobs at the local level rather than waiting on
long period of approval from a bureaucratic and a centralized system that
does not achieve efficiency.
2.6 International Finance encompasses International Banking
International banking is the process in which financial institutions allow
foreign clients-both companies and individuals to use their services. Perhaps
the most talked about international banks are located in Switzerland.
However, many other countries have fully developed international banking
infrastructures. Many individuals and companies participate in international
banking to minimize (or evade) their tax liability. International banking refers
to the activities of providing financial services (banking) to clients (both
institutional and individual) located in many different countries. This
encompasses a wide range of activities, including transactions with foreigners
and domestic residents relating to deposits and lending in domestic and
foreign currencies, facilitating foreign currency transactions and foreign
exchange risk hedging, participating in international loan syndications, and
facilitating international trade finance for clients. One choice to make when it
comes to international banking is whether one wants to open an offshore
bank account or a local bank account, or both. Offshore banking can give one
easy access to financial savings, but these accounts may be inaccessible for
some expatriates, as such banks often require high initial deposit.
In general, mostly wealthy individuals and companies use international banks.
While there are many benefits to international banking-particularly taxation,
the process can be quite expensive. Some advantages of international banking
include tax evasion, foreign direct investment, protection from lawsuits, the
fostering of international trade and protection against fluctuating domestic
interest rates .International banking also makes sense for companies that
operate internationally. Despite the benefits of international banking, several
disadvantages exist. First, if the country where the banks are located becomes
economically or politically unstable, it could cause dire financial risks, like
nationalization of firm’s assets. Second, while offshore banking certainly falls
into a gray area of U.S. law, if one is determined to be illegally sheltering
money, the Internal Revenue Service imposes stiff penalties for such abuse.
Currency exchange rates can fluctuate, therefore potentially devaluing one's
assets.
3.0 Methodology
3.1 Introduction
This research uses quantitative analysis which is analyzed through statistical
means. The focus is the presentation of the responses in numerical data in
terms of percentages and charts to analyze the behavior and the trends of the
responses provided to the questionnaire by the finance professionals. The
objective of the questionnaire was to assess the responses from the finance
professionals who work at the various companies on their level of preference
for international matters on exchange rate fluctuations as prevailing in Ghana
and how these changes affect restructuring of the multinational firms located
in Ghana.
3.2 Study type and design
A quantitative approach was used to gather the information needed through a
