Impact of Multinational on the Financial Markets - Article Example

In simple words, multinational make quite a substantial impact on the financial markets. To understand this impact, we are going to look at it from the basic economic point of view. When a multinational undertakes FDI, it usually does that in the host country's currency. This increases the demand of host country's currency and hence the host country's currency appreciates at the expense of the multinational's local currency. When many multinationals carry out FDI, the impact is quite bigger and hits the financial markets harder.

According to the global index of world's largest cities (2008), the impact of FDI is quite significant in the economic growth of the country and in turn this is reflected in the lifestyle of people. FDI brings money to the financial markets of the developing countries, which is reflected in terms of easy availability of credit, infrastructure development and more government expenditure in to the economy. All of this results in creation of metropolis and triggers further economic growth. According to Osland (2003), the impact of FDI on foreign financial markets is reflected in terms of more technology transfer between the countries.

For example, USA loaned money to Pakistan in 1999 with a condition that this money will only be used for exporting USA goods, and Pakistan bought F19 aircraft. Hence, we can see that any money that is transferred to another country is used for the benefit for the same country or its industrial sector. This leads to growth of the local industry and profits made by multinationals are usually sent to the parent companies, increasing overall profitability of the firm and increased inflow of foreign exchange.

However, it is believed that this sudden growth of financial markets through FDI brings disadvantages to a country as well. FDI usually sets up intense competition for the local industry and hence many a times local industry suffers a lot. For example, China uses the policy of dumping goods into foreign markets, which has resulted in closure of several small businesses all over the world. This leads in unemployment and the closure of local industry means that all the money will flow out of the company to parent company and little will be left for further investment.

(Shrader et al, 2000).