<Short-term financing info from class textbook>
20-1aInternal
Short-Term
Financing
Before an MNC or subsidiary in need of funds searches for outside
funding, it should check other subsidiaries’ cash flow positions to
determine whether any internal funds are available.
Internal Control over Funds
An MNC should have an internal system that
constantly monitors the amount of short-term
financing undertaken by all of its subsidiaries. This
system may allow the MNC to readily recognize
which subsidiaries have cash available in the same
currency that another subsidiary needs to borrow.
Furthermore, the monitoring system can govern the
extent of short-term financing by each subsidiary.
Without such controls, one subsidiary might borrow
excessively, which may ultimately affect the amount
that other subsidiaries can borrow if all subsidiary
borrowing from banks is backed by the parent’s
guarantee. Thus, the MNC can use internal controls
both to monitor the short-term financing employed
by its subsidiaries and to impose a maximum shortterm debt level for each subsidiary.