Transfer pricing can have an effect on how divisions of a MNC are perceived by the local banks. Which transfer price would leave a local affiliate that imports components from the parent with less impressive financial statements?

Question

Quizplus · Accepted Answer

A high transfer price would increase the cost of imported components for the local affiliate, which would reduce its profit margin and make its financial statements less impressive from the perspective of local banks. A low transfer price, on the other hand, would reduce the cost of imported components and increase the profit margin, making the affiliate's financial statements more impressive. Therefore, the best choice is A.

Transfer Pricing Can Have an Effect on How Divisions of a MNC