Financing the working capital requirements of a multinational companies foreign affiliates poses a complex decision problem. This complexity stems from the large number of financing options available to the subsidiary of an MNC. Subsidiaries have access to funds from sister affiliates and the parent, as well as external sources. This article focuses on developing policies for borrowing from either within or without the companies when the risk of exchange rate changes is present and different tax rates and regulations are in effect.
There are four aspects of short-term overseas financing strategy namely;
- Identifying the key factors,
- Formulating and evaluating objectives,
- Describing available short-term borrowing options and
- Developing a methodology for calculating and comparing the effective after-tax dollar costs of these alternatives.