Although exchange rate plays a very important role in financial market of the international communities, it is not necessary to say International finance is simply “corporate finance with an exchange rate.” Ross, Westerfield, and Jaffe (2008) stated that the basic domestic corporate finance forms an international corporation in the same principles with a most significantly complicated foreign exchange market. International corporations, additionally, are influenced by foreign or domestic political, cultural, and environmental changes and regulations.
Exchange rate is only a process of currency exchange and pricing system in the international community. Exchange rate keeps changing over time depending on the market changes domestically and internationally (Ross et al, 2008). International corporations use the important information provided from foreign exchange markets, as it is undertaking capital budgeting and making financial decisions for future growth. Research from Petry and Sprow (1993) from financial theory perspective, found that managers in international corporations act in the interest of shareholders, and accept the criterion of market efficiency. Where the exchange rate is matter the most, international corporate finance deals with purchasing power parity to balance the international capital budgeting and the risks of politics and exchange rate (Ross et al, 2008). Therefore, international finance is not just a simple “corporate finance with an exchange rate.”
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References
Petry, G. H. & Sprow, J. (1993). International trends and events in corporate finance and management: A survey. Financial Practice & Education, 31(1), 21-28.
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2008). Corporate finance (8th ed.). New York: McGraw-Hill Irwin.
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