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Multinational corporations consider inflation, purchasing power parity, and interest rates while deciding to borrow in that or this country. When a company borrows in a country with higher interest rates, the risk of inflation and currency depreciation grows, but the debt of this company is the same (Egilsson, 2020, p. 451). Even if the price level changes, the company will benefit from borrowing in countries with high-interest rates. Moreover, an international corporation might decide to borrow from a country with high-interest rates because it will increase its home currency’s demand and value.
If a company understands that it receives a higher return on equity from such an operation than it can get from borrowing in a country with low-interest rates, it will borrow in such countries like Brazil. In comparison, countries with low-interest rates, like Switzerland, offer a low return on equity due to low economic growth. If rates are too low, they will cause excessive growth and inflation (Seabury, 2021). No matter how much money a company needs to borrow, it will loan the same sum in different countries, so the choice of a country with high-interest rates will be more beneficial.
I agree with you that inflation rates may influence an international company’s decision to borrow from Brazil rather than Switzerland. Inflation will lead to a higher price level and currency depreciation, but it will also strengthen a firm’s local currency (Egilsson, 2020, p. 462). As a result, when it needs to return its debt, the sum will be the same, but the Brazilian currency will be depreciated, benefiting the corporation.
As to the financing advantages of multinational businesses, I agree that they are more flexible. Other advantages are access to global markets, cost efficiency, and a diversified workforce. Such companies can choose in which country to borrow or invest, produce new products, and hire workers. I also agree that TFC may wish to do business in Switzerland and Brazil. However, I think it can invest in both these countries and China because its currency and trade esteem is perfect for the U.S. dollar. China has a developing economy and great potential for growth and extension.
References
Egilsson, J. H. (2020). How raising interest rates can cause inflation and currency depreciation. Journal of Applied Economics, 23(1), 450-468.
Seabury, C. (2021). How interest rates affect the U.S. markets. Investopedia.
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