Financing Discussion. In recent years, several U.S. firms have penetrated Mexico's market. one of the biggest challenges is the cost of capital to finance business in Mexico. Mexican interest rates tend to be much higher than U.S. interest rates. In some periods, the Mexican government does not attempt to lower the interest rates because higher rates may attract foreign investment in Mexican securities.

a. How might U.S. based MNC's expand in Mexico without incurring the high Mexican interest expenses when financing the expansion? Are there any disadvantages to this strategy?

b. Are there and additional alternatives for the Mexican subsidiary to finance its business itself after it has been well established? How might this strategy affect the subsidiary's capital structure?