Evaluating overseas projects

Article Abstract:

International capital budgeting decisions follow the same principles as domestic capital investment decisions, but there are additional factors that must be considered in the case of overseas investments. The expected incremental cash flows may be over-stated if exchange control restrictions are not taken into account. Other complications may arise in situations in which the cash flows of the project differ from the cash flows of the parent corporation, exchange rates are not expected to remain constant during the life of the project, overseas and domestic tax rates differ, royalties and management fees are involved in the project, or when part of the international investment is in the form of equipment.

Economic aspects

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Financing overseas subsidiaries

Article Abstract:

Financing overseas subsidiaries entails special risk factors: political, exchange control and currency risks, losses incurred by the subsidiaries, taxation, and profit transfer. Techniques for minimizing risk include: export insurance, local financing, and transfer pricing. Using local minority shareholders is not only required by law in many countries, but is also politically expedient.

Methods, Accounting, Subsidiary corporations, Subsidiaries

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Does FX exposure matter?

Article Abstract:

Three types of exposure to corporate treasury operations are discussed: transaction, economics, and translation. The International Fisher effect on currency exchange and the effects of devaluation on foreign exchange exposure are described. Translation exposure does not have a significant effect on currency exposure.

Analysis, International finance

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