This is a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions. The most significant imperfections include asymmetric information between domestic and foreign investors, lack of transparency, high transaction costs, foreign exchange risks, political risks, corporate governance differences, and a variety of regulatory barriers. Firms having access to markets with high liquidity and a low level of segmentation should have a A firm is able to increase its market liquidity by raising debt in the euromarket and by tapping local capital markets through foreig subsidiaries. Increased market liquidity causes the marginal cost of capital line to flatten out on the right. This results in If a firm is resident in a segmented capital market, it can still escape from this market by sourcing its debt and equity abroad. The result should be Whether or not MNES have a lower cost of capital than their domestic counterparts depends on [Choose] [Choose) the firm being able to raise more capital at a lower marginal cost a lower marginal cost of capital, improved liquidity for its shares, and a larger capital budget Capital market segmentation lower cost of capital and greater ability to raise new capital their optimal financial structures, systematic risk, availability of capital, and the optimal capital budget [Choose] [Choose]