International Finance: A Practical Perspective

Cover
International finance
Brief contents
Contents
Guided tour
Preface
Acknowledgements
Part A essential background
	Introduction
		What do bankers sell?
		Banks in general
		Commercial banks
		Investment banks
		Bank holding companies
		Glass-steagall act
		Central banks
		Asset-liability mismatch
		Offshore money a.k.a. eurodollars
		International monetary fund (imf)
		World bank
		Bank for international settlements
		World trade organization
		Facts about the foreign exchange markets
		Financial crisis 2007–8
		Summary
	The international monetary system
		The gold standard
		The bretton woods system
		International reserves
		The role of gold up to 1
		The second amendment
		Exchange rate arrangements
		The european single currency – the euro
		Summary
		End of chapter questions
Part B Foreign exchange
	Exchange rates: the basic equations
		Foreign exchange markets
		Some basic relationships
		Interest rates and exchange rates
		Exchange rates and inflation rates
		Interest rates and inflation rates
		Taylor rule
		Changes in the spot rate and the forward discount
		Interest rate differentials and changes in the spot exchange rate
		Purchasing power parity applied
		Big mac purchasing power parity
		Summary
		End of chapter questions
	Foreign exchange markets
		The players
		Methods of quotation
		Forward contracts and quotations
		Spot settlement
		Forward value dates
		Main purpose of the forward market
		Summary
		End of chapter questions
	The balance of payments
		The essence of international trade
		The balance of payments and foreign exchange rates
		Balance of payments accounting
		Forecasting exchange rates and the balance of payments
		Summary
		End of chapter questions
	Theories and empiricism on exchange rate movements
		Inflation and interest rate differentials
		The balance of payments approach
		The monetary approach
		Overshooting – the dornbusch model
		The portfolio balance theory
		The role of news
		Chartism
		The efficient markets hypothesis
		Empiricism and purchasing power parity
		Empiricism and the fisher effect
		Empiricism and the international fisher effect
		Empiricism and interest rate parity
		Empiricism and expectations theory
		Empiricism and foreign exchange market efficiency
		The carry trade a.k.a. uncovered interest arbitrage
		Summary
		End of chapter questions
	Definitions of foreign exchange risk
		Transaction exposure
		Translation exposure
		Economic exposure
		Accounting for financial market derivatives
		Summary
		End of chapter questions
	Test bank 1
		Exercises
		Multiple choice questions
Part C Hedging
	Does foreign exchange exposure matter?
		Transaction exposure
		Economic exposure
		Translation exposure
		Forecasting exchange rates
		Summary
		End of chapter questions
	Principles of exposure management
		The essence of hedging
		Why hedge anyway?
		What does exposure management aim to achieve?
		The arguments against corporate hedging
		The arguments for corporate hedging
		Information for exposure management
		What kind of foreign exchange exposure is significant?
		The transaction exposure information system
		Histogramming
		Reinvoicing vehicles
		Strategies for exposure management
		Economic exposure revisited
		Macroeconomic exposure
		Value at risk
		Risk management models and the normal distribution
		Summary
		End of chapter questions
	Internal techniques of exposure management
		Netting
		Matching
		Leading and lagging
		Pricing policy
		Asset and liability management
		Summary
		End of chapter questions
	External techniques of exposure management
		Forward markets
		Trading purpose of the forward market
		Short-term borrowing
		Discounting foreign-currency-denominated bills receivable
		Factoring foreign-currency-denominated receivables
		Currency overdrafts
		Exchange risk guarantees
		Counterparty risk
		Summary
		End of chapter questions
	Test bank 2
		Exercises
		Questions relating to Press Cutting tB
		Multiple choice questions
Part D Derivatives
	Swaps
		Swaps – the basics
		Interest rate swaps
		Calculation of interest
		Currency swaps
		Assessing risk in swaps
		Summary
		End of chapter questions
	Financial futures and foreign exchange
		Financial futures in general
		Currency contracts
		Hedging a borrowing
		Basis risk
		Use of currency futures market
		Using currency futures in corporate hedging
		Summary
		End of chapter questions
	Options
		Call options
		Put options
		Writing options
		Reading the Financial Times
		Combinations of options
		Valuing options
		An option pricing formula
		An option pricing table
		Summary
		End of chapter questions
	Currency options
		How currency option markets work
		Currency option strategies
		Average rate option
		Hedging a currency option
		Option pricing models
		Option pricing models for stocks and currencies: The empirical evidence
		Corporate use of currency options
		Dealing with the dollar – retailers produce some fancy moves to cover their exposure
		Summary
		End of chapter questions
	Interest rate risk
		The term structure of interest rates
		Interest rate exposure
		Forward rate agreements
		Interest rate futures
		Interest rate swaps
		Interest rate options
		Summary
		End of chapter questions
	Financial engineering
		Forward contracts
		Option contracts
		Some financial instruments
		Summary
		End of chapter questions
Part E Financial crisis 2007–8
	Credit default swaps
		What are they?
		How do credit default swaps work?
		Drivers of the CDS market
		Correlations and credit ratings
		The credit guarantee
		The unwinding
		Summary
		End of chapter questions
	The financial crisis of 2007–8 : a synopsis
		The good times
		New models of lending
		The time bomb ticks
		The time bomb explodes
		Why? oh why did no-one see it coming?
		Escape
		The eurozone’s problems
		Optimum currency area
		Sovereign debt crises
		Summary
		End of chapter questions
	Test bank 3
		Exercises
		Questions on Press Cutting 15.1
		Multiple choice questions
Part F International capital budgeting
	The internationalisation process
		Foreign direct investment
		The sequential process
		Market imperfections
		Transaction cost theory
		Internalisation and firm-specific advantages
		Location-specific advantages
		The product life cycle
		The eclectic theory
		International joint ventures
		International acquisitions
		Globalisation
		Game theory and international strategy
		The new trade theory
		Summary
		End of chapter questions
	Exchange controls and corporate tax in international investment
		Exchange controls
		Profits repatriation
		Circumventing profit repatriation restrictions
		Other techniques of unblocking funds
		International corporate taxation
		Taxation of uk multinationals
		Multicurrency management centres
		Co-ordination centres
		Foreign exchange rate strategy
		Summary
		End of chapter questions
	The international capital budgeting framework
		The international complications
		NPV or APV?
		Foreign investment and the cost of capital
		The basic model
		Empirical studies of international investment appraisal
		Summary
		End of chapter questions
	The international capital budgeting model
		International project appraisal
		Taxation
		Project evaluation with no exchange controls
		Growth opportunities – a.k.a. real operating options
		Valuing real operating options
		Project evaluation with exchange controls
		Debt–equity swaps
		Sensitivity analysis
		Summary
		End of chapter questions
	International investment: what discount rate?
		The original us evidence
		The new international evidence
		Mean reversion
		The equity risk premium
		The international risk premium
		Gains from international diversification
		The international capital asset pricing model
		Emerging markets
		Summary
		End of chapter questions
	Country risk analysis and political risk
		Country risk analysis
		Sources of country risk
		Measuring country risk
		Political risk
		The measurement of political risk
		Managing political risk
		Post-expropriation policies
		Political risk analysis in international capital budgeting
		Summary
		End of chapter questions
	International capital budgeting: the practicalities
		Net present value and adjusted present value
		Overseas project appraisal: alpha NV
		The olifan project with no home tax on remittance
		Summary
		End of chapter questions
	Test bank 4
		Exercises
		Multiple choice questions
Part G International financing
	Financing the multinational and its overseas subsidiaries
		The international financing choice
		Minimisation of global taxes
		Managing risk
		Financial market distortions
		The multinational’s capital structure
		Political risk
		Exchange control risk
		Currency risk
		Losses earned by subsidiaries
		Intercompany credit
		Taxation effects
		Dividend policy
		Other methods of profit transfer
		Parent company guarantees
		Partly owned subsidiaries
		The advantages of borrowing internationally
		The risks of borrowing internationally
		Foreign currency financing decisions
		Summary
		End of chapter questions
	Financing international trade and minimising credit risk
		Cash with order
		Open account
		Documentation in foreign trade
		Bills of exchange
		Documentary letters of credit trading
		Government assistance schemes
		Sources of export finance
		Forfaiting
		Countertrade
		Summary
		End of chapter questions
	Practical problems in hedging
		Contingent, or pre-transaction, exposures (a.k.a. tender to contract exposures)
		The price list problem
		The foreign competitor problem
		Quantifying economic exposure
		Hedging gearing or net worth
		Translation exposure management
		Currency risk policies
		Summary
		End of chapter questions
Part H Miscellaneous
	Miscellaneous issues in international finance
		Overseas subsidiary performance measurement
		Problems in overseas performance evaluation
		Centralisation of exposure management
		The treasury as a profit centre
		Transfer pricing
		Accounting for financial market derivatives
		Repos
		Syndicated loans
		Offshore currency interest rates and their linkage with Domestic rates
		The international bond market
		The advantages of the eurobond market to borrowers
		The advantages of the eurobond market to investors
		Cash management
		Project finance
		Summary
		End of chapter questions
	Test bank 5
		Exercises
		Multiple choice questions
	Suggested answers to end of chapter questions
	Suggested answers to selected exercises
	Solutions to multiple choice questions
	Appendix
		Present value of $1
		Present value of $1 received annually for n years
		Table of areas under the normal curve
		Black and Scholes value of call option expressed as a percentage of the share price
		Present value of $1 with a continuous discount rate, r , for T periods. Values of e-rt
		Selections from ISO 4217 currency code list, a.k.a. SWIFT codes
Glossary
Notes
Index