LÝ THUYẾT TỰ LUẬN

1. Please describe the sources which multinational corporations could use to finance the
capital for the parent and their subsidiaries.

 Equity Financing: MNCs sell shares to raise capital, allowing investors to share profits.
 Debt Financing: MNCs can borrow funds from banks or issue bonds, repaying principal with
interest over time.
 Internal Financing: MNCs can fund subsidiaries using retained earnings or profits without
external financing.
 Foreign Direct Investment (FDI): MNCs can provide capital to foreign subsidiaries through
equity, debt, or combination.
 Joint Ventures: MNCs can collaborate with local companies in foreign markets, sharing
financial risk and reducing capital requirements through equity or debt financing.
 Mergers and Acquisitions (M&A): MNCs can expand operations and increase capital through
acquisitions, mergers, and equity/debt financing.
 Government Financing: MNCs may receive government financial support through grants,
subsidies, or tax incentives to encourage investment in specific sectors or regions.

2. Please describe the process of remitting subsidiary earnings to the parent and explain
what factors affect that process.

The first step is for the subsidiary company to prepare financial statements, calculate net
income, and determines dividends for distribution to shareholders. Approval from the board
of directors or shareholders is obtained before transferring the dividend amount to the parent
company through wire transfer or check. Factors affecting the remittance process include tax
laws in both countries, currency exchange rates, and the legal and regulatory environment.
High tax rates may impact the amount and timing of remitted earnings, while currency
fluctuations may affect the parent company's earnings. To ensure compliance with
regulations, minimize tax implications, and account for currency fluctuations, these factors
must be considered when remitting subsidiary earnings.
3. Please Interpret the hedging exposure techniques for payables, and make a comparison
of their advantages and disadvantages

Common payables hedging techniques include forward contracts, options contracts, and
money market hedges.
 Forward contracts involve entering into a contract with a financial institution to buy or
sell currency at a predetermined rate on a specific future date. This eliminates the risk of
currency fluctuations but commits the business to a fixed exchange rate.
 Options contracts give businesses the right, but not the obligation, to buy or sell currency
at a specified rate within a specific timeframe. This provides flexibility to choose whether
or not to exercise the option based on market movements, but option contracts can be
more expensive.
 Money market hedges involve borrowing funds in a foreign currency to make payments
to foreign suppliers. This avoids the need to convert the business's currency, thus
eliminating currency fluctuation risks. Money market hedges offer cost-effective, foreign
currency funding options.

4. Please Interpret the hedging exposure techniques for receivables, and make a
comparison of their advantages and disadvantages.

The most common hedging techniques for receivables are forward contracts, options
contracts, and invoice currency.
 Forward contracts involve entering into a contract with a financial institution to buy or
sell currency at a predetermined rate on a specific future date, eliminating currency
fluctuation risk. However, it commits the business to a fixed exchange rate.
 Options contracts give businesses the right, but not the obligation, to buy or sell currency
at a specified rate within a specific timeframe. They offer flexibility but can be more
expensive.
 Invoice currency technique involves invoicing foreign customers in their currency,
eliminating the need for currency conversion and reducing currency fluctuation risks. It is
simple and cost-effective, but there is a risk if the foreign currency depreciates
significantly before payment.
5. Please Interpret what mean do MNCs use to achieve the benefit of DFI.

 Vertical integration: MNCs utilize DFI to establish subsidiaries in foreign countries, reducing
transaction costs, securing reliable supplies, and gaining greater production control.
 Market expansion: DFI enables MNCs to establish subsidiaries in foreign countries, directly
selling products or services, increasing market share, and reducing domestic market
dependence.
 Resource acquisition: MNCs utilize DFI for accessing natural resources, ensuring reliable
supplies, reducing costs, and gaining a competitive advantage in production processes.
 Tax optimization: DFI enables MNCs to optimize their tax liabilities by establishing
subsidiaries in countries with lower tax rates, reducing overall tax burdens and increasing
profitability.
 Risk diversification: By operating in multiple countries through DFI, MNCs can diversify
their business risks, reducing exposure to economic, political, and other risks associated with
any single country.

6. Please Interpret what motivations make MNCS Involved in DFI.

 Access to new markets: MNCs can expand their customer base, enter new markets, and
reduce reliance on home markets through foreign investments.
 Resource acquisition: MNCs invest in countries to acquire natural resources, access cheaper
labor or raw materials, and enhance their supply chain.
 Lower production costs: MNCs can improve profitability by investing in countries with
lower production costs, reducing expenses.
 Improved efficiency: MNCs may invest in countries with improved infrastructure,
technology, or logistics to improve production efficiency.
 Political or economic stability: Investing in politically and economically stable countries
reduces the risk of disruptions to business operations for MNCs.
 Competitive advantage: MNCs gain a competitive advantage by investing in foreign
countries, accessing new technologies, building relationships with local suppliers, and
staying ahead of rivals.
7. Subsidiary financing affects the global capital structure

When subsidiaries are formed, financing is often required to support their operations. This
can be obtained through equity investments, loans, or bonds. If the subsidiary obtains
financing through equity investments, it may issue shares to investors. Equity financing
involves issuing shares to investors, potentially reducing the parent company's control over
the subsidiary. Debt financing, on the other hand, increases the parent company's overall debt
and may impact its credit rating and future financing opportunities
In addition, Subsidiaries' financing choices impact the parent company's capital structure. If a
subsidiary issues significant debt, the parent company's debt-to-equity ratio increases,
potentially increasing risk perception. Conversely, if a subsidiary issues equity, it improves
the parent company's debt-to-equity ratio, making it appear less risky to investors.

8. The benefits and the advantages of all factors that affect the cost of capital

 Interest rates: Low-interest rates make it easier to obtain capital and reduce debt
servicing costs, improving cash flow and profitability.
 Inflation: Inflation increases borrowhealths but can also benefit companies through
asset and revenue value increases, potentially leading to higher profits.
 Market conditions: Economic uncertainty raises the cost of capital, while periods of
economic growth healthier it as investors accept lower returns.
 Company size and financial health: Larger, financially stable companies with strong
cash flows can access capital at lower rates compared to smaller, riskier firms.
 Type of financing: Equity financing tends to have higher costs due to greater risk,
while bank loans generally have lower costs compared to other forms of financing.

9. The corporation characteristics and host country characteristics

Corporation Characteristics:
  Size and Scope: impact adaptability to local customs, regulations, and economic
conditions.
 Business Model: Corporation's business model shapes foreign market entry strategy.
 Management Style: Management style impacts corporation's communication,
collaboration with local partners and employees.
 Financial Resources: Corporation's financial resources determine investment capacity and
economic resilience in host country.

Host Country Characteristics:

 Political Environment: Political environment impacts corporation's operational

efficiency..
 Legal System: Legal system impacts corporations' business operations, regulations
compliance, and intellectual property protection..
 Culture and Customs: Cultural and customs of host countries impact corporation
perception, interactions with customers, and employees.
 Economic Environment: Economic environment impacts corporation's revenue,
investment opportunities, and growth potential.

10. The perspectives of parents and subsidiaries in financing a new project

Financing a new project from the parent company's perspective is seen as an investment in the
subsidiary's growth and success Funding can be provided through equity investments or debt
financing, with expectations of increased profitability and strategic positioning

From the subsidiary's perspective, project financing offers opportunities for product or service
development, market expansion, and operational efficiency. However, tensions may arise due to
short-term return pressures conflicting with the parent company's long-term outlook
Clear communication and collaboration are crucial for aligning the perspectives of parents and
subsidiaries in project financing. Establishing clear goals, expectations, timelines, and success
metrics is important. Seeking outside advice from financial experts or consultants can help
structure the project to meet the needs of both parties effectively.

11. Please Explain how the increasing or decreasing of subsidiary financing affects the
global capital structure of the parent. If the foreign creditor wants to charge a higher
loan rate, why and how does the parent company handle that to keep the global capital
structure unchanged? Câu hỏi khác: The subsidiary financing affects the global capital
structure?

When a subsidiary increases its debt financing, the parent company adjusts its own debt
financing to maintain the desired overall capital structure of the MNC. If a subsidiary reduces its
debt financing, the parent company may increase its own debt or adjust another subsidiary's
leverage to achieve the target capital structure.

To handle a foreign creditor charging higher loan rates, the parent company can use internal
funds instead of external borrowing to finance the subsidiary's needs. This maintains the global
capital structure while avoiding increased costs from the foreign creditor.

Additionally, if the parent company guarantees debt repayment for foreign subsidiaries, it can
reduce perceived credit risk, potentially leading to lower costs of debt for the subsidiaries. This
helps maintain the global capital structure while benefiting from reduced borrowing costs.

12. Please interpret the factors that affect the Cost of Capital of MNCs and the advantages
of these factors.

Advantages: reduce the cost of capital

 Size of Firm: Borrowing large amounts can reduce MNC capital costs, stock or bond
issues, and flotation costs by gaining preferential treatment from creditors.
 Access to International Capital Markets: Subsidiaries can secure funds locally at lower
costs when host country interest rates are low compared to parent's home country.
  International Diversification: Portfolio of subsidiaries' cash flows show lower variability,
reducing bankruptcy probability and capital cost, reducing dependence on individual
economies.

Disadvantages: increased cost of capital

 Exposure to Exchange Rate Risk: Increased likelihood of bankruptcy due to exchange

rate fluctuations raises the MNC's cost of capital.
 Exposure to Country Risk: Establishing foreign subsidiaries increases MNC risk of host
country government seizing assets, increasing bankruptcy probability and capital cost.

13. Why do MNCs need to pursue international business?

Three theories explain MNCs' motivation to expand internationally:

 The Theory of Comparative Advantage: Specialization in countries boosts production

efficiency, with some having technological advantages and others like China and
Malaysia having lower labor costs.
 The imperfect markets theory: Imperfect market conditions in the real world cause
immobile production factors, affecting labor and resource transfer. Costs and restrictions
also impact international resource transfers.
 The product life cycle theory: As a firm matures, it may recognize additional
opportunities outside its home country. As time passes, if the firm's product that is
exported becomes very popular in foreign countries, it may produce the product in
foreign markets, thereby reducing its transportation costs

14. Please explain the damage of agency problem to MNC and how to prevent that.

Agent problems arise when managers prioritize their own interests over shareholder wealth in
multinational corporations (MNCquangs). These conflicts are more common in MNCs compared
to domestic firms due to challenges in monitoring distant subsidiaries, cultural differences, and
managing large MNCs.

To reduce and prevent agency problems:

 Parent Control: The parent corporation should communicate MNC goals to all
subsidiaries, focusing on maximizing overall value rather than individual subsidiary
value. Monitor subsidiary decisions and implement compensation plans aligned with the
MNC's goals.
 Corporate Control: External factors can help mitigate agency problems in MNCs. Poor
decisions can decrease the value, while acquisition by another firm at a lower price deters
them. Institutional investors can influence management decisions and hold them
accountable through complaints or board changes.