International Finance: Applied Frameworks

Global Money Moves: Your Finance Checklist

Doing business internationally? Don’t let money issues catch you off guard.

1. Foreign Exchange (FX) Risk: Currency Swings

• Transaction Risk: You’re expecting to receive EUR 10M in 3 months, but the EUR might weaken against the USD.
  • Action: Use a forward contract to lock in an exchange rate today.
• Translation Risk: Your German subsidiary’s assets are in EUR, but your books are in USD. Fluctuations change your reported value.
• Economic Risk: Long-term impact on your competitiveness from currency changes.
• Why Hedge? Reduces uncertainty in future cash flows.

2. International Capital Budgeting: Investing Abroad

• Thinking of building a factory in Mexico?
• Use Adjusted Present Value (APV): Calculate standard project NPV, then add (or subtract) the present value of “financing side effects” unique to the foreign project (e.g., tax holidays, subsidized loans, hedging costs).
• Why? Accounts for international-specific benefits/costs that standard NPV might miss.

3. Global Financing: Where to Borrow/Raise Money

• Should you borrow in local currency or your home currency?
• Should you issue bonds in London, New York, or Tokyo?
• Consider: Cost of capital, political risk, tax implications, liquidity.

Golden Rule: Don’t just export your product; understand and manage the unique financial risks and opportunities that come with operating globally.