International Financial Management
International financial management extends capital budgeting and financing across borders: parity conditions, repatriation restrictions, country risk and the instruments used to fund overseas operations.
Appraisal rules
Forecast cash flows in the foreign currency, convert at forecast spot rates built from PPP, and discount at the domestic WACC - or keep everything in the foreign currency at the foreign WACC and convert the NPV once. Never discount foreign-currency flows at the INR WACC. Adjust for withholding tax on dividends, blocked funds (use APV or a lower remittable flow) and country risk through a premium or scenario haircut. The initial outlay is translated at the spot rate.
Financing and instruments
GDR/ADR raise equity overseas; ECBs raise foreign-currency debt subject to hedging and all-in-cost ceilings; masala bonds raise INR abroad. Export credit, forfaiting and factoring fund cross-border working capital. Netting, leading/lagging and reinvoicing centres manage intra-group flows.
Worked example
USD 20 million outlay at ₹83 = ₹1,660 million. USD inflows of 6 million a year for five years; India inflation 5%, US 2%, so the rupee is expected to depreciate by 1.05/1.02 − 1 ≈ 2.94% a year: 85.44, 87.95, 90.54, 93.21, 95.95. INR flows are 512.6, 527.7, 543.2, 559.3 and 575.7 million. Discounted at 14%: 449.6 + 406.1 + 366.7 + 331.2 + 299.0 = ₹1,852.6 million, NPV ≈ +₹192.6 million - accept if country-risk adjustments do not overturn it.
Traps
Mixing currencies between numerator and discount rate; ignoring withholding tax and remittance caps; using the parent's WACC without a country-risk adjustment; treating expected depreciation as certain; translating the outlay at a forward rather than the spot rate.