Explain the impact of globalisation on financial activities of firms

Globalization has reshaped how firms manage their finances, offering new opportunities and challenges:

1. Access to Global Capital Markets: Firms can raise funds internationally, reducing reliance on domestic markets and potentially lowering costs.
2. Foreign Direct Investment (FDI): Firms expand globally by investing in foreign markets, gaining new resources and market access, but facing risks like currency fluctuations.
3. Currency Risks: Operating in multiple currencies exposes firms to exchange rate volatility, requiring strategies like hedging to manage risks.
4. Increased Competition: Global competition forces firms to cut costs and improve efficiency, often through outsourcing and automation.
5. Mergers & Acquisitions (M&A): Firms expand by acquiring other companies, gaining new technologies and markets but facing complex financial and integration challenges.
6. Diversified Portfolios: Firms can invest globally to reduce risks and ensure long-term growth by balancing investments across developed and emerging markets.
7. International Financial Standards: Firms must comply with global accounting standards (like IFRS) to ensure transparency and credibility.
8. Tax Optimization: Multinational firms can use transfer pricing to reduce tax liabilities, though they must navigate legal risks.
9. Financial Risk Management: Global operations require managing risks from economic instability, trade policies, and political changes using financial tools like derivatives.
10. Digitalization and FinTech: Advances in digital financial technologies, like blockchain and AI, simplify cross-border transactions and improve operations.
11. Economic & Political Uncertainty: Firms must prepare for risks from trade wars, sanctions, or policy changes that can affect financial outcomes.

Conclusion: Globalization offers firms growth opportunities but also brings risks. Effective financial management and risk strategies are essential for success.