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Author Question: Why do companies often treat foreign reinvestment decisions differently than new foreign investment ... (Read 130 times)

LaDunn

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on: Jul 7, 2018
Why do companies often treat foreign reinvestment decisions differently than new foreign investment decisions?
 
  What will be an ideal response?

Question 2

What is an offshore financial center? What are the main characteristics of OFCs?
 
  What will be an ideal response?
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aidanmbrowne

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Reply #1 on: Jul 7, 2018
Answer to Question 1

Companies treat decisions to replace depreciated assets or add to the existing stock of capital from retained earnings in a foreign country somewhat differently from original investment decisions. Once committed to a given locale, a company may find it doesn't have the option of moving a substantial portion of the earnings elsewhereto do so would endanger the continued success of an operation in a given foreign location. Aside from competitive factors, a company may need several years of almost total reinvestment and allocation of new funds to one area in order to meet its objectives. Another reason a company treats reinvestment decisions differently is that once it has experienced personnel within a given country, it may believe they are the best judges of what is needed for that country, so headquarters managers may delegate certain investment decisions to them.

Answer to Question 2

Offshore financial centers are cities or countries that engage in a variety of financial transactions and that provide significant tax advantages to companies and individuals who do business there. These centers provide an alternative, usually cheaper, source of funding for MNEs so that they don't have to rely strictly on their own national markets. Offshore financial centers have one or more of the following characteristics:
a. a large foreign-currency market for deposits and loans
b. a market that is a large net supplier of funds to the world financial markets
c. a market that is an intermediary or pass-through for international loan funds
d. economic and political stability
e. an efficient and experienced financial community
f. good communications and supportive services
g. an official regulatory climate favorable to the financial industry, in the sense that it protects investors without unduly restricting financial institutions


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