Working capital financing strategies were described in the text as conservative, moderate, and aggressive, reflecting the attitude of company management toward risk. Things get a bit more complex with an MNE that centralizes working capital management and financing operations, though. In this context, some subsidiaries may have aggressive financing strategies while others have conservative financing strategies. Which of the following statements concerning working capital financing by MNEs is correct?
A) For countries in which blockages are a significant problem, an aggressive strategy can be used with the central pool providing short-term financing as needed. This strategy minimizes the need for much equity which will be blocked.
B) If a host-country government offers subsidized long-term loans at particularly good below-market rates and generous repayment terms, then a conservative strategy can be used effectively with excess cash sent to the central pool for reallocation.
C) For countries in which blockages are not an issue and that let the marketplace determine all interest rates, a moderate financing strategy makes sense with the central pool providing short-term funds for temporary working capital and receiving excess funds for reallocation or investment.
D) All of the statements above are correct
E) Only statements a and b are correct.

Question

Quizplus · Accepted Answer

Each statement describes a scenario where the characteristics of the local market and regulatory environment influence the choice of working capital financing strategy for MNE subsidiaries. Statement A addresses how to manage in countries with capital blockages, B suggests a strategy for taking advantage of subsidized loans, and C outlines a moderate approach for markets without blockages and with market-determined interest rates. All these strategies are viable depending on the specific circumstances faced by an MNE in different countries.

Working Capital Financing Strategies Were Described in the Text as Conservative