Financing Decision In recent years, several U.S. firms have entered the market in Mexico. One of the biggest challenges is the cost of capital to finance businesses in Mexico. Mexican interest rates tend to be much higher than U.S. interest rates. In some periods, the Mexican government does not attempt to lower the interest rates because higher rates may attract foreign investment in Mexican securities. How might U.S.-based MNCs expand in Mexico without incurring the high Mexican interest expenses when financing their expansion? Are any disadvantages associated with this strategy? Are there any additional alternatives for the Mexican subsidiary to finance its business itself after it has become well established? How might this strategy affect the subsidiary’s capital structure?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 17, Problem 18QA
Textbook Problem

Financing Decision In recent years, several U.S. firms have entered the market in Mexico. One of the biggest challenges is the cost of capital to finance businesses in Mexico. Mexican interest rates tend to be much higher than U.S. interest rates. In some periods, the Mexican government does not attempt to lower the interest rates because higher rates may attract foreign investment in Mexican securities.

  1. How might U.S.-based MNCs expand in Mexico without incurring the high Mexican interest expenses when financing their expansion? Are any disadvantages associated with this strategy?
  2. Are there any additional alternatives for the Mexican subsidiary to finance its business itself after it has become well established? How might this strategy affect the subsidiary’s capital structure?

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