Expanding opportunities in world markets have provided incentives for a large increase in cross-border capital expenditures. Similar to local expenditure projects, international investment projects need to be assessed to determine their contribution to the value of the firms implementing them. To evaluate transnational investment, the financial manager is required to understand the factors shaping the cross-cultural appreciation of the firm's products in foreign markets, the tax complexities involved in overseas investments, and the degree of the firm's exposure to country and exchange rate risks.
This note can be used in a course in international finance or in a section on international trade designed to evaluate the present value of trade flows generated abroad. It is intended to provide the global executive with the basic financial tools required to incorporate country and exchange rate risk hazards into the analysis and evaluation of overseas business opportunities. To illustrate the application of these tools, this note provides a variety of exercises related to US corporate investments overseas.