c) The taxation of the host country;
d) The dividend policy.Local financing is generally meant to meet short-term liabilities of foreign subsidiaries.
The bank credit is obtained from the local banks of the country or from branch units of
the banks of the country of the parent company. The latter may accord loan more easily
if they have dealings with the parent company.
Foreign subsidiaries, if quoted on the local exchange market, may tap local financial
markets.
The parent group, normally, meets a lion share of the financial needs of the subsidiary at
the time of its creation. This is irrespective of the fact whether the parent group acquires
an existing company or creates a subsidiary ex-nihilo (from the scratch) by bringing
capital and equipment, patents, brands or licenses.
Instead of lending on its own, the parent company may guarantee a loan taken by the
foreign subsidiary. These guarantees facilitate financing of the subsidiary. They can
equally be furnished by other sister companies. These guarantees have a character of
direct investment.
International capital markets
- Introduction
That international financing in the form of short, medium or long-term securities or
credits has become necessary for the international economy. International Capital
Markets have come into existence to cater to these needs.
A distinctive feature of the financial strategy of multinational companies is the wide
range of external services of funds that they use on an ongoing basis.
Firms have three general sources of funds available: (i) internally generated cash, (ii)
short-term external funds, and (iii) long-term external funds. External investment comes
in the form of debt or equity which is generally negotiable (tradable) instruments.
- Development of international capital markets
The main function of financial markets is to transfer current purchasing power (in the
form of money) from savers to borrowers in exchange for a promise of greater future
purchasing power and to allocate those funds among the potential users on the basis of
returns. The consequence of well functioning financial markets is that more and better
projects get financed. Now most of the major financial markets attract both investors and
fund raisers from abroad. Thus, these markets are also international financial markets
where foreigners can both borrow and lend money.