ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing
A parent's shareholders expect a stable dividend, but the group's foreign subsidiaries in a country with exchange controls cannot remit cash easily. Which action is most consistent with managing this blocked-funds problem?
The group should use other lawful remittance channels such as royalties, management fees or loan repayments, or reinvest locally, to get value out of the restricted country. Blocked cash cannot be treated as distributable, and dividends need not be cut to zero.
- AUse alternative remittance routes such as royalties, management fees or intragroup loan repayments, within local regulationsCorrect
- BCut the dividend to the shareholders to zero immediately
- CIgnore the subsidiary's cash and treat it as distributable
- DConvert all group borrowings to the blocked currency
Explanation
Where dividends are restricted, firms may use other permitted channels such as fees, royalties, loan repayments or reinvest locally. Treating blocked cash as distributable ignores the restriction, and cutting dividends to zero is unnecessary.
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