With regard to the financial structure of a foreign subsidiary,

Question

Quizplus · Accepted Answer

All of the given options are correct. Using local financing not only reduces political risk, but it may also provide other advantages such as tax incentives, access to local markets and knowledge of the local financial system. Financing a foreign investment solely with home-country equity increases the risk of expropriation as it may create a perception of the MNCs as outsiders who do not contribute to the local economy. Therefore, it is advisable to finance foreign subsidiaries with at least some local debt or equity.

With Regard to the Financial Structure of a Foreign Subsidiary