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Foreign subsidiary

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Foreign subsidiary

  • This topic has 5 replies, 2 voices, and was last updated 3 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 12, 2022 at 10:11 pm #648534
    Mahrukh
    Participant
    • Topics: 26
    • Replies: 38
    • ☆☆

    Hello John,
    In part b of Q2 of SD 2020 exam,it is asked that how a company can overcome restrictions on dividends & remittance from its foreign subsidiary. In the second para of answer, examiner mentioned loans and currency swaps. Can u plz explain how these can help in overcoming the restrictions?
    Thanks.

    February 13, 2022 at 8:48 am #648544
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    They could take out a loan in Canvia, convert the money borrowed to Euros, and use the money that was available for dividends to pay the interest on the loan.

    Alternatively they could borrow money in Euros, swap it for a loan in Canvia Lira and so pay the interest in CL.

    February 13, 2022 at 4:20 pm #648558
    Mahrukh
    Participant
    • Topics: 26
    • Replies: 38
    • ☆☆

    I didn’t got your second point clearly.
    Also why it says there’ll be counter party risk in both cases? As they’ll enter into a swap or loan agreement with their own subsidiaries?

    February 14, 2022 at 7:17 am #648578
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    The swap will be with another company not with a subsidiary (see our notes on currency swaps). Instead of remitting dividends, the money is used to pay somebody else’s interest in Canvia, and the somebody else pays the interest on our loan in Euros.

    February 14, 2022 at 12:22 pm #648610
    Mahrukh
    Participant
    • Topics: 26
    • Replies: 38
    • ☆☆

    Ok got it now, thanks

    February 14, 2022 at 3:11 pm #648622
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘Foreign subsidiary’ is closed to new replies.

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