Explore BrainMass

Foreign Financing: Financing in Chile

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

The new manufacturing facility destined for Chile, for which you deduced an appropriate "discount rate" earlier, has not yet been financed. Management has decided that Chile will indeed be the location of the new facility in spite of the concerns expressed by some on your team. Should your company finance this project via the capital markets in Chile or the USA? Explain how you might go about making that decision and also give a "first hunch" of where you would acquire the needed capital. A full-fledged study is beyond the scope of this assignment and is not required. Anecdotal evidence would be useful though.

Summarize an article (or series of articles) regarding the foreign financing engaged by an MNC during the past five years. What key concepts apply?

© BrainMass Inc. brainmass.com October 25, 2018, 9:23 am ad1c9bdddf

Solution Preview

I will go about evaluating the decision by systematically studying both the Chile and the US capital markets. I will select the capital market that is better. First, I consider the Chile capital market. The Chile capital market has strong government controls. These capital controls have increased financial constraints for smaller firms. Firms raising capital are taxed and this is forcing Chilean firms to adopt alternative forms of financing. Also, there are loopholes in the capital control laws but to use these loopholes requires a high upfront cost. Further, Chile banks are subject to close monitoring by the government and this makes it expensive for firms to raise financing. The rate of Banco Central de Chile is 4.5%.

When we compare these facts to the capital markets in the US, the situation is very different. US capital markets are marked with availability and accuracy of information about securities and their prices. Even though the US capital markets are regulated, they are not controlled by the US government. The US government does not impose taxes that increase the cost of capital. The passing of the Sarbanes Oxley Act 2002 has increased the cost of compliance for companies raising capital in the US markets, but these costs have added value ...

Solution Summary

The answer to this problem explains financing of a new manufacturing facility in Chile. The references related to the answer are also included.

See Also This Related BrainMass Solution

Multinational cash management: Combine banking with foreign exchange management.

What are cross-border banks and how would I describe the international banks that offer multinational cash management services that combine banking with foreign exchange management?

Select one bank and describe how the services it offers to take care of the firm's international working capital management requirements?

- Bank of America
- Citibank

How would I demonstrate why this choice is the best alternative among the banks investigated (maybe compare and contrast)?

I would like help in understanding the firm's assumptions and which banks offer services in these areas:

-subsidiaries in South America and Asia that import materials and parts and assemble for export.
-centralize cash management.
-local lending sources for operating cash.
-short-term investment vehicles for excess cash balances.
-foreign exchange and forward market services.
-bills to pay in both local and other currencies.

View Full Posting Details