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ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing

Which of the following is a recognised technique for a multinational to reduce the impact of blocked funds in a foreign subsidiary?

A multinational can use blocked funds locally, for example to pay local suppliers or to support back-to-back or parallel loans, so the parent avoids sending new cash. Revaluing assets or ignoring the funds does not release them and distorts the appraisal.

  1. AUsing the blocked funds to pay local suppliers and raising parent funding for other needs, or lending through a back-to-back loan arrangementCorrect
  2. BIncreasing the parent's dividend to its own shareholders
  3. CConverting all subsidiary assets into the parent's currency by revaluing them
  4. DIgnoring blocked funds in project appraisal because they cannot be used

Explanation

Blocked funds can be used locally, for example to settle local costs or to support back-to-back or parallel loans, so the parent need not send fresh cash. Revaluation does not free cash, and ignoring them misstates project value because they will eventually be released.

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