International Finance - HSBC vs BP Essay Example | Topics and Well Written Essays - 3000 words

International Finance - HSBC vs BP - Essay Example This essay declares that British petroleum shortly known as BP was formed in 1998 from the merger of British Petroleum and Amoco grew by buying Atlantic Richfield Company. BP has proved reserves of 18.3 billion barrels of oil equivalent including large holdings in Alaska. BP is the largest oil producer in the US and also top refiner processing 2.8 billions barrels of crude oil per day. BP operates 28,500 gas stations worldwide, including 15,900 in the US. With the success of its ‘BP solar international subsidiary’ BP has created BP alternative Energy (hydrogen, solar and wind power generation) with an initial investment of $1.8 billion. British Petroleum (BP) is one of six vertically integrated private sector oil, natural gas and gasoline super-majors in the world. In the year 2006 BP was ranked 4th in the world by the Fortune Global 500 list, for turnover with sales at $268 billion. This paper stresses that the main issue faced by multinational corporations in the international financial environment is the valuation of such projects whose cash-flows depend on the exchange rate. Two approaches are used: one based on option-valuation methods and the second based on equilibrium arguments that rely on the international capital asset pricing model. The other factors which need consideration are tax planning and the management of flow of funds within foreign subsidiaries of a given multinational. Two essential and related aspects of this environment are first, the foreign exchange market in which exchange rates are determined and second the international financial system governing exchange rate determination. There is a close connection between interest rates, inflation, and exchange rates.