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Financial Structure And Debt Summary

1. Optimal financial structure and the MNE

To get the best financial structures a MNE should take into account four different variables. We are going to develop these 4 main variables:

a. Availability of capital
MNE has a big advantage compared to local firms because they have an access to the international market and they can lower their costs of equity and debt.
b. International diversification of cash flows
Because the cash flows of MNE are internationally diversified they can support higher debt ratios.
c. Foreign exchange risk and the cost of debt
When asking for credits abroad, and specially to countries in which the currency used is different, the MNE has the risk of losing money due to the currency exchange ratios. When the credit has to be repaid the MNE has to pay both the nominal interest plus the increase or decrease in the currency exchange ratio.
d. Expectations of international portfolio investors
In the international market, an acceptable debt ratio is......


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Approximate Word Count: 725
Approximate Pages: 3 (250 words per double-spaced page)

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