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Abstract
International financial decision is not a simple one and it is mainly characteristic to multinational companies or to companies located in countries with a reduced saving rate that is not sufficient to cover all internal financing needs (is the case of emerging markets like Romania is). The financial managers of Romanian companies need to have tools to decide if they will use a credit in lei from local banks or will try to obtain a credit from abroad in a foreign currency (in Euro, USD etc.). The required assumption in this case is that capital account between Romania and other countries is totally free. This decision is not a simple one and it should be based on theoretical background. The financing decision depends upon two main criteria: cost and risks assumed by the company. This paper will discuss the solution in this case to compare different international financing opportunities that are expressed in different currencies from the perspective of a debtor (company).
Keywords: International Cost of Capital, International Capital Budgeting, International Credit, International Financing Decision.
JEL classification: G15; G21; G32; M16.
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Introduction
Any business financing operation is based on a project idea. Any project is initiated by sponsors or by stakeholders and it is oriented to fulfil the market needs (local or global markets). The financial intermediaries developed a lot of mechanisms and financing techniques that could be used to cover long term or short term financing needs. The companies could now switch between internal financing alternatives (reinvested profit, amortization, conversion of debt into equities, increase of capital by internal subscription made by existing stockholders) and external ones (credit mainly for short term horizon and bonds / equities for long term horizon). The use of internal resources is claimed when the company is in its first years of operation; the company operates with low tangibility of its assets (no fixed assets); the company has a high financing leverage or when the company has no intention to become transparent or dependent upon different stakeholders or new equity holders (Harrison et al, 2004). The external resources are used when the company needs important capital resources that could not be produced internally; when is a very attractive for external capitalists or...