A chief financial officer (CFO) of an international company is responsible for analyzing and mitigating financial risks. Castello (2016) suggests that to minimize global risk, a CFO should accurately plan and prepare for the possible risks and have a contingency plan that will be used to address issues if they arise. A market exit strategy and benchmarks can help evaluate the performance of the business and determine if the strategy failed on time, to avoid future losses. Dunn (2019) argues that a CFO must create a list of possible risks, categories them, for instance, compliance, liquidity, debt, or supply chain, and calculate the probability and impact of each. The difference in currency and other financial ramifications are the main aspects that signify the different approaches required for managing international companies (Brigham & Ehrhardt, 2017).
Cash flows can help minimize political risks by changing the way the company manages its financials. The main factor to consider is that some companies can restrict the transfer of corporate resources or assets from foreign companies within their boundaries (Brigham & Ehrhardt, 2017). Other types of political risks are associated with the safety of employees working abroad due to terrorist threats. As such, to address these risks, a CFO can use local capital to finance the operations. Additionally, to overcome the risk of a company losing value because of some actions from the host country government, the CFO can structure the cooperation with a subsidiary in a way that it is only valuable as an integral element of the international company (Brigham & Ehrhardt, 2017). Finally, having insurance that covers the potential political risks can protect the company from potential economic losses abroad. One example is the one provided by the Overseas Private Investment Corporation.
References
Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management: Theory and practice [with MindTap] (15th ed.). Mason, OH: South-Western.
Castello, G. (2016). Five strategies to mitigate global risks. Web.
Dunn, J. (2019). How does a CFO manage & mitigate risk? Web.