Question

What factors would be considered when deciding whether a subsidiary should reinvest earnings or remit them to the parent?

Answer 1

Factors to be considered when deciding upon whether subsidiary should reinvest earning or remit them to the parents are as follows-

1. Exchange rate fluctuations-there would be exchange rate involved between the parent country and subsidiaries country so it should be taken into account before decision making.

2.interest rate risk between both the countries should also be factored into before making a decision.

3. Rate of inflation and risk related to inflation should also be considered while decision making regardance to remittance

4. Reinvestment rate and associated expenses must be considered and compared with remittance charges in order to make a decision.

These are the primary considerations which must be taken into account by a subsidiary company before remitting or reinvesting its profit.