Chapter 56. Introduction to International Corporate Financial Management

FRANK J. FABOZZI, PhD, CFA, CPA

Professor in the Practice of Finance, Yale School of Management

PAMELA P. DRAKE, PhD, CFA

J. Gray Ferguson Professor of Finance and Department Head of Finance and Business Law, James Madison University

Abstract: Financial management decisions of most firms are not confined to domestic borders. Many financing and investment decisions involve economies and firms outside a firm's own domestic borders either directly, through international transactions, or indirectly, through the effects of international issues on the domestic economy. International financial management is the management of a firm's assets and liabilities considering the global economy in which the firm operates.

Keywords: thin capitalization, transfer price, globalization, cross listing, depositary receipts, Euroequity issues, Eurobond market, foreign currency risk, political risk, currency forward contract, currency futures contracts, currency swaps, currency options

In this chapter, we discuss special factors that must be considered in international corporate financial management. We begin with a review of the global economy, looking at recent international agreements that affect financial decisions. We will also examine the reasons why firms expand operations beyond their domestic borders and the issues related to taxes and with foreign currencies. Finally, we discuss issues related to financing, capital structure, ...

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