Week 4 - Discussion Board – FINTECH - NRS - UPDATED - 02-01-24

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Apr 3, 2024

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Running Header: WEEK 4: DISCUSSION BOARD – FINTECH Nicholas Singletary Wilmington University Week 4: Discussion Board – FINTECH MBA7250.22650.B1 February 1 st , 2024 Sel Dibooglu

2 There are many opportunities and benefits to expanding financially around the world. In today’s age, FINTECH or “Financial technology is used to describe new technology that seeks to improve and automate the delivery and use of financial services. (Kagan, 2023) CFOs use FINTECH to rapidly increase their financial margins and effectively communicate with their different regions and subsidiaries globally. As a CFO in Finance, I will evaluate the financial opportunities when leveraging FINTECH to improve critical functions such as managing risk globally and performing global capital budging. Managing Risk Globally Companies want to figure out how to control how much risk their different operations manage financial experts. Creating different subsidiaries financially in different regions can enhance management risk globally. Some companies like GM, “GM actively measures various exposures but then requires 50% of them to be hedged with a prescribed ratio of futures and options.” (Desai, 2008) This restriction limits the firm’s ability to make financial and accounting decisions deemed risky or uncertain. However, this rule will keep financial experts in line by only guaranteeing partial protection with futures, contracts, and options. On the other hand, by creating subsidiaries, the company can receive a steady profit flow back to the leading company. Desai says, “Many firms choose to maintain smooth flows of profits from subsidiaries to the parent because the requirement to disgorge cash makes it harder for managers to inflate their performance through fancy accounting.” (2008) Not only does sending capital back to the leading company help manage risk, but creating a revenue stream from subsidiaries helps prevent managers from manipulating data and playing with numbers. The requirement to send money back protects the leading company from unethical practices. As stated by Desai, “This exposure

3 could be managed, in part, by offsetting exposures elsewhere in the group or by having the parent borrow in yen so that movements in the yen liability would cancel movements in the yen asset.” Companies can manage their exposure by borrowing money to offset the impact of currency fluctuations. Overall, companies can use subsidiaries to ensure financial success and manage risk. Global capital budgeting: Financial opportunities exist when leveraging FINTECH to improve critical functions such as performing capital budging. In a centralized business, “managers applied the same hurdle rate to dividends from around the world that they used for domestic power projects, despite the different business and country risks they faced.” However, this can be a waste of opportunity since “in working present and future value problems, cash flow timing is critically important.” (Ross et al., 2021) A centralized system does not add value to the Finance department, but creating a global FINTECH internal system will help mitigate solutions when performing financial analysis. When performing capital budging, “firms need to make sure that their finance professionals actively discuss potential risks with the country managers who best understand them.” (Desai, 2008) CFOs can use their global financial systems to understand better compound interest in their local markets, where the firm can build “accumulating interest on an investment over time to earn more interest” (2008). Discounted cash flow valuation is an essential variable in Finance, and companies can gain more significant capital by hiring experts in different regions. On the other hand, “with simple interest, interest is earned only on the original principal amount invested.” (Ross et al., 2021) There are different types of investments to increase the present value financially through allocating investments. By investing in different regions, that

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4 will improve the “time value of money” which “refers to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future.” (2021) By having expert of individuals globally, they will be better suited to evaluate how the investment grows over time. Therefore, a capital budgeting approach will help deliver a more accurate evaluation of potential risks and gains. As a CFO, I would use FINTECH to improve critical functions such as managing risk globally and performing capital budgeting. According to a new Boston Consulting Group (BCG), “Financial technology revenues are projected to grow sixfold from $245 billion to $1.5 trillion by 2030”. Leveraging FINTECH globally can create sustainable growth for the company and a deeper understanding of the different financial markets to approach compound interest variables. FINTECH can also project optional new steams for growth in regional and local markets. The expansion globally of FINTECH presents various prospects and advantages in todays digital age of finance.

5 References Boston Consulting Group (BCG). (2023, May 3). Fintech Projected to Become a $1.5 Trillion Industry by 2030. PRNEWSWIRE.COM. https://www.prnewswire.com/news-releases/fintech-projected-to-become-a-1-5-trillion- industry-by-2030--301813978.html Desai, M. A. (2008). The Finance Function in a Global Corporation. Kagan, J. (2023, December 20). Financial Technology (Fintech): Its uses and impact on our lives. Investopedia. https://www.investopedia.com/terms/f/fintech.asp Ross, S. A., Westerfield, R., & Jordan, B. D. (2021). Fundamentals of Corporate Finance.