ABSTRACT
This chapter introduces international financial management and international accounting. It begins with a discussion of how country risk might influence profits or the value of assets in a country. Next, the chapter considers net present value as a tool to estimate a return on investment. This leads to a discussion of capital structures for foreign subsidiaries. The chapter then discusses international accounting issues and in particular the use of International Financial Reporting Standards. The chapter introduces the complexities of translating foreign currencies for financial reporting. Next the chapter moves on to issues concerning transfer pricing and the fair market value of prices. The chapter discusses two strategies for dealing with international taxation. One is thin capitalization, where companies choose countries where they can get greater tax deductions based on interest payments on their loans. The other focuses on the business model, where an MNC chooses a location that has favorable local tax laws. The chapter ends with a discussion of the worldwide trends regarding how the world's largest companies use social responsibility reporting to supplement financial reporting.
