MNEs can raise debt or equity funds offshore. Offshore financingis the provision of financial services by banks and other agents to nonresidents of a country. Offshore financial centers (OFC) are cities or countries that provide large amounts of funds in currencies other than their own and are used as locations in which to raise and accumulate cash. Generally, OFCs provide a more flexible and less expensive source of funding for MNEs. Also, they exhibit several characteristics, including a large foreign-currency (Eurocurrency) market for deposits and loans, a large net supplier of funds to the world financial markets, economic and political stability, an efficient and experienced financial community, good communications and supportive services, and an official regulatory climate that is favorable to the financial industry.
Offshore financial centers (OFC) can be operational centers, with extensive banking activities involving short-term financial transactions (e.g., London). They can also be booking centers, with little actual banking activities and where transactions are recorded to take advantage of secrecy laws and/or low or no tax rates (e.g., Cayman Islands). Booking centers are often seen as “tax haven” centers.
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