Strategy for hedging and multinational tax management

 Under the high competitive market nowadays, the multinational trading becomes more and more popular for the general organization. It is an effective way to expand their market and to achieve more profitability in the global size market. However, the multinational trading will involve more risk and various tax rate issues during the transaction. Therefore, the risk management and multinational tax management plays an essential role to reduce the risk and the unnecessary cost on the international trading.

Firstly, the international trading will meet the currency issue. The exchange- rate of nation is changing every day, and it reflects the situation of market for the country. On the other word, the exchange rate affects that the investor wondering to put investment in the country or not. Additionally, the changes of exchange-rate raise the risk of investment for companies. However, the Hedging policy is an effective way to reduce the risk by multinational transaction on credit for general organizations.

The hedging policy is not only adopted for reducing the managers risk, but also it is possible to reduce the cost from the financial distress and adjust capital structure, reduce the investment incentives and ensure the investment opportunities. In addition, the forms of hedging can be concluded by netting which is change the gross amount of currency to the net amount for multinational trading, leading and lagging which is the strategy to decide the best payment time. Also, the hedging policy could be used through financial instruments to choose the right time and specific exchange rate to make the currency transaction as result the risk and cost could be reduce by the changes of exchange- rate.

In the Wall Street Journal of ‘Strong Start to 2013 for Asia Hedge Funds’, the hedge funds had performed excellent in Asia on January, especially in Japan. Due to the earthquake occurred in Japan in 2011, the hedge fund is operating difficultly in the last two years. However, this January Japan had gained a good risk returns to equity markets which is returned up on average 4.15%. For the other countries in Asia, the hedge fund returns 4.02% according to data from EurekaHedge.

Due to the good performance of hedge fund in Asia, investors might take more attention on the Asia market. The high-performing hedge fund ensures not only the lower risk on the investment, but also the better long-term profit could be achieved in that market.

What’s more, the multinational trading also involves the tax issue which means that the different regions are holding the various tax rates for trading. In order achieving more profit and maximize shareholder value, trading with the lower tax rate country is an effectively way to makeup this goal.

The chancellor told BBC News: "We want a tax system that makes it competitive for businesses to set up in Britain and create jobs, but we also want a tax system where business pay their taxes and that's what we're setting up achieving here with other countries at this meeting in Moscow.” This illustrated that the high tax will be suffered by the large organizations which set up company at high tax-rate region such as Europe, UK and North America. The joint venture to the low tax rate countries is a possible way to solve this problem.