– There would be no real reason to choose one financing location over another based upon interest rate differences (government subsidies are the exception).
– If an exchange rate changes due to inflation in the foreign country, the domestic currency value of a real asset held in that foreign currency will not necessarily change, because the exchange rate effect upon value will be offset by the inflationary effect upon value.
– Generally, real assets held in other countries tend to experience increases in value as inflation increases, where as monetary assets do not and therefore they are serious candidates for the hedging of exchange risk.
– There is also a truly international capital market from which companies can borrow. In it, long-term funds are usually called eurobonds, whereas short-term borrowings are called eurocurrency.
– Often borrowing rates are slightly lower in eurobond/currency markets due to lower regulatory costs.
– Repatriation of funds is often a problem for companies whose shareholders are foreigners. Some countries have significant measures in place that seek to keep profits earned by foreign firms within their borders. Such things as management fees, royalties, loan interest and principal repayments, and transfer payments are used to repatriate funds to the domestic parent company.
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