International Finance – Chapter 14: Funding the Multinational Firm,
2026 – Study Material and Practice Questions
The initial decision made when designing a capital sourcing strategy - ANS✔✔ Management has
to agree on a long-term financial objective then choose between alternative paths to get there.
T/F: The paths firms make when designing capital sourcing strategies can be aided by
investment banks or advisors. - ANS✔✔ True.
Investment bankers aid the capital sourcing strategy because... - ANS✔✔ They know potential
foreign investors and what they require. They also help navigate regulatory and institutional
barriers.
T/F: Most firms raise their capital in their own domestic market. - ANS✔✔ True.
How to venture outside of domestic funding - ANS✔✔ International bond offerings and cross-
listing shares on more liquid stock exchanges.
Optimal financial structure - ANS✔✔ Considering taxes and bankruptcy costs, a firm can
determine its optimal capital structure (perfect mix of debt and equity) to minimize cost of
capital for a given level of risk.
Relationship between WACC and debt ratio - ANS✔✔ As the debt ratio increases, WACC (total
cost of capital) decreases because low cost debt is heavier compared to high cost equity.
The theory of optimal structures can be modified to accommodate MNEs through these
variables - ANS✔✔ 1. Availability of capital
2. Diversification of cash flows
3. Forex risk
4. Expectations of international portfolio investors.
, T/F: By diversifying their cash flows globally, MNEs can achieve the same kind of reduction in
cash flow variability as portfolio investors diversifying their securities globally. - ANS✔✔ True.
Effective cost when a firm issues a debt in a foreign currency - ANS✔✔ After tax cost of repaying
the principal + interest in own currency terms.
The key to gaining a global cost and availability of capital - ANS✔✔ Attracting and retaining
international portfolio investors.
T/F: to raise funds, firms must use the norms of their home countries. - ANS✔✔ False. They
should get as close as possible to US and UK norms because they are the most liquid and
unsegmented.
Key elements when seeking to raise capital - ANS✔✔ - A private or public equity placement
- Where to list the offering
- The type of issuance.
Types of equity issuance - ANS✔✔ 1. IPO
2. SPO
3. Euroequity
4. Directed Issue
Types of equity listings - ANS✔✔ Cross-lisitng
IPO - ANS✔✔ Initial sale of shares to the public made by a private company to raise capital. 15-
25%, more public disclosure.
2026 – Study Material and Practice Questions
The initial decision made when designing a capital sourcing strategy - ANS✔✔ Management has
to agree on a long-term financial objective then choose between alternative paths to get there.
T/F: The paths firms make when designing capital sourcing strategies can be aided by
investment banks or advisors. - ANS✔✔ True.
Investment bankers aid the capital sourcing strategy because... - ANS✔✔ They know potential
foreign investors and what they require. They also help navigate regulatory and institutional
barriers.
T/F: Most firms raise their capital in their own domestic market. - ANS✔✔ True.
How to venture outside of domestic funding - ANS✔✔ International bond offerings and cross-
listing shares on more liquid stock exchanges.
Optimal financial structure - ANS✔✔ Considering taxes and bankruptcy costs, a firm can
determine its optimal capital structure (perfect mix of debt and equity) to minimize cost of
capital for a given level of risk.
Relationship between WACC and debt ratio - ANS✔✔ As the debt ratio increases, WACC (total
cost of capital) decreases because low cost debt is heavier compared to high cost equity.
The theory of optimal structures can be modified to accommodate MNEs through these
variables - ANS✔✔ 1. Availability of capital
2. Diversification of cash flows
3. Forex risk
4. Expectations of international portfolio investors.
, T/F: By diversifying their cash flows globally, MNEs can achieve the same kind of reduction in
cash flow variability as portfolio investors diversifying their securities globally. - ANS✔✔ True.
Effective cost when a firm issues a debt in a foreign currency - ANS✔✔ After tax cost of repaying
the principal + interest in own currency terms.
The key to gaining a global cost and availability of capital - ANS✔✔ Attracting and retaining
international portfolio investors.
T/F: to raise funds, firms must use the norms of their home countries. - ANS✔✔ False. They
should get as close as possible to US and UK norms because they are the most liquid and
unsegmented.
Key elements when seeking to raise capital - ANS✔✔ - A private or public equity placement
- Where to list the offering
- The type of issuance.
Types of equity issuance - ANS✔✔ 1. IPO
2. SPO
3. Euroequity
4. Directed Issue
Types of equity listings - ANS✔✔ Cross-lisitng
IPO - ANS✔✔ Initial sale of shares to the public made by a private company to raise capital. 15-
25%, more public disclosure.
