International Capital Market Equilibrium and the Multinational Firm Financing and Investment Policies

Abstract

The purpose of this paper is to develop the financing and investment policies for the multinational firm in the framework of international capital market equilibrium. The analysis incorporates foreign exchange rate fluctuations, differential international interest rates, and differential international taxes. The current valuation theories do not contain realistic treatment of these characteristics of the international financial environment. Therefore, the existing financial theory has to be amply modified if it has to accommodate multinational corporations. Nonetheless, the few notable works in contemporary financial economics, which seek to extend the theory into the international setting, are subject to significant limitations.