International Financial Management, Abridged Edition

Cover Page......Page 1
Title Page......Page 2
Copyright Page......Page 4
Dedication......Page 5
Brief Contents......Page 7
Contents......Page 9
From the Publisher......Page 23
Preface......Page 25
About the Author......Page 31
PART 1: The International Financial Environment......Page 33
Managing the MNC......Page 35
GOVERNANCE How SOX Improved Corporate Governance of MNCs.......Page 37
Why Firms Pursue International Business......Page 38
How Firms Engage in International Business......Page 40
Valuation Model for an MNC......Page 45
Organization of the Text......Page 49
Point Counter-Point: Should an MNC Reduce Its Ethical Standards to Compete Internationally?......Page 50
Questions and Applications......Page 51
Blades, Inc. Case: Decision to Expand Internationally......Page 55
Small Business Dilemma: Developing a Multinational Sporting Goods Corporation......Page 56
References......Page 57
Term Paper on the International Credit Crisis......Page 58
Balance of Payments......Page 59
International Trade Flows......Page 62
International Trade Issues......Page 66
GOVERNANCE Managerial Decisions about Outsourcing......Page 69
Factors Affecting International Trade Flows......Page 71
Correcting a Balance-of-Trade Deficit......Page 73
International Capital Flows......Page 75
Agencies That Facilitate International Flows......Page 79
How Trade Affects an MNC’s Value......Page 81
Self-Test......Page 82
Questions and Applications......Page 83
Small Business Dilemma: Identifying Factors That Will Affect the Foreign Demand at the Sports Exports Company......Page 84
References......Page 85
Foreign Exchange Market......Page 87
International Money Market......Page 97
International Credit Market......Page 101
International Bond Market......Page 102
International Stock Markets......Page 104
GOVERNANCE Effect of Sarbanes-Oxley Act on Foreign Stock Listings......Page 107
GOVERNANCE How Market Characteristics Vary among Countries.......Page 108
How Financial Markets Serve MNCs......Page 110
Point Counter-Point: Should Firms That Go Public Engage in International Offerings?......Page 111
Questions and Applications......Page 112
Blades, Inc. Case: Decisions to Use International Financial Markets......Page 114
Internet/Excel Exercises......Page 115
References......Page 116
Measuring Exchange Rate Movements......Page 117
Exchange Rate Equilibrium......Page 118
Factors That Influence Exchange Rates......Page 121
Movements in Cross Exchange Rates......Page 128
Anticipation of Exchange Rate Movements......Page 129
Point Counter-Point: How Can Persistently Weak Currencies Be Stabilized?......Page 132
Questions and Applications......Page 133
Blades, Inc. Case: Assessment of Future Exchange Rate Movements......Page 136
Small Business Dilemma: Assessment by the Sports Exports Company of Factors That Affect the British Pound’s Value......Page 137
References......Page 138
Forward Market......Page 139
Currency Futures Market......Page 143
Currency Options Market......Page 149
Currency Call Options......Page 150
Currency Put Options......Page 155
Contingency Graphs for Currency Options......Page 158
Conditional Currency Options......Page 160
European Currency Options......Page 161
Self-Test......Page 162
Questions and Applications......Page 163
Blades, Inc. Case: Use of Currency Derivative Instruments......Page 169
Small Business Dilemma: Use of Currency Futures and Options by the Sports Exports Company......Page 170
References......Page 171
PART 2: Exchange Rate Behavior......Page 173
Exchange Rate Systems......Page 175
A Single European Currency......Page 184
Government Intervention......Page 186
Intervention as a Policy Tool......Page 190
Point Counter-Point: Should China Be Forced to Alter the Value of Its Currency?......Page 192
Questions and Applications......Page 193
Blades, Inc. Case: Assessment of Government Influence on Exchange Rates......Page 196
References......Page 197
International Arbitrage......Page 199
Interest Rate Parity (IRP)......Page 209
Summary......Page 219
Self-Test......Page 220
Questions and Applications......Page 221
Blades, Inc. Case: Assessment of Potential Arbitrage Opportunities......Page 226
Internet/Excel Exercise......Page 227
References......Page 228
Purchasing Power Parity (PPP)......Page 229
International Fisher Effect (IFE)......Page 239
Comparison of the IRP, PPP, and IFE......Page 248
Point Counter-Point: Does PPP Eliminate Concerns about Long-Term Exchange Rate Risk?......Page 249
Questions and Applications......Page 250
Blades, Inc. Case: Assessment of Purchasing Power Parity......Page 255
References......Page 256
Midterm Self-Exam......Page 259
PART 3: Exchange Rate Risk Management......Page 267
Why Firms Forecast Exchange Rates......Page 269
Forecasting Techniques......Page 270
Forecast Error......Page 280
Using Interval Forecasts......Page 288
Self-Test......Page 290
Questions and Applications......Page 291
Blades, Inc. Case: Forecasting Exchange Rates......Page 295
Small Business Dilemma: Exchange Rate Forecasting by the Sports Exports Company......Page 296
References......Page 297
Relevance of Exchange Rate Risk......Page 299
Transaction Exposure......Page 301
Economic Exposure......Page 309
Translation Exposure......Page 314
Summary......Page 316
Self-Test......Page 317
Questions and Applications......Page 318
Blades, Inc. Case: Assessment of Exchange Rate Exposure......Page 324
Internet/Excel Exercises......Page 326
References......Page 327
Hedging Exposure to Payables......Page 329
Hedging Exposure to Receivables......Page 336
Limitations of Hedging......Page 345
Alternative Hedging Techniques......Page 348
Point Counter-Point: Should an MNC Risk Overhedging?......Page 350
Questions and Applications......Page 351
Blades, Inc. Case: Management of Transaction Exposure......Page 359
Internet/Excel Exercises......Page 361
References,......Page 362
Managing Economic Exposure......Page 363
A Case  on Hedging Economic Exposure......Page 369
Hedging Exposure to Fixed Assets......Page 373
Managing Translation Exposure......Page 374
Summary......Page 376
Self-Test......Page 377
Questions and Applications......Page 378
Blades, Inc. Case: Assessment of Economic Exposure......Page 380
Small Business Dilemma: Hedging the Sports Exports Company’s Economic Exposure to Exchange Rate Risk......Page 381
References......Page 382
PART 4: Long-Term Asset and Liability Management......Page 383
Motives for Direct Foreign Investment......Page 385
GOVERNANCE Selfish Managerial Motives for DFI.......Page 388
Benefits of International Diversification......Page 390
Host Government Views of DFI......Page 395
Self-Test......Page 397
Questions and Applications......Page 398
Blades, Inc. Case: Consideration of Direct Foreign Investment......Page 400
Internet/Excel Exercises......Page 401
References......Page 402
Subsidiary versus Parent Perspective......Page 403
Input for Multinational Capital Budgeting......Page 405
Multinational Capital Budgeting Example......Page 407
Other Factors to Consider......Page 410
Adjusting Project Assessment for Risk......Page 419
GOVERNANCE Managerial Controls over the Use of Sensitivity Analysis......Page 420
Summary......Page 421
Questions and Applications......Page 422
Blades, Inc. Case: Decision by Blades, Inc., to Invest in Thailand......Page 428
References......Page 430
International Corporate Governance......Page 431
International Corporate Control......Page 432
Factors Affecting Target Valuation......Page 436
Example of the Valuation Process......Page 438
Disparity in Foreign Target Valuations......Page 442
Other Corporate Control Decisions......Page 443
Control Decisions as Real Options......Page 445
Point Counter-Point: Can a Foreign Target Be Assessed Like Any Other Asset?......Page 447
Questions and Applications......Page 448
Blades, Inc. Case: Assessment of an Acquisition in Thailand......Page 452
Internet/Excel Exercises......Page 454
References......Page 455
Why Country Risk Analysis Is Important......Page 457
Country Risk Factors......Page 458
Assessment of Risk Factors......Page 461
Techniques to Assess Country Risk......Page 462
Measuring Country Risk......Page 463
Incorporating Risk in Capital Budgeting......Page 467
GOVERNANCE Governance of the Country Risk Assessment......Page 470
Preventing Host Government Takeovers......Page 471
Summary......Page 472
Self-Test......Page 473
Questions and Applications......Page 474
Blades, Inc. Case: Country Risk Assessment......Page 478
References......Page 480
APPENDIX A: Answers to Self-Test Questions......Page 491
APPENDIX B: Supplemental Cases......Page 503
APPENDIX C: Using Excel to Conduct Analysis......Page 521
APPENDIX D: International Investing Project......Page 529
APPENDIX E: Discussion in the Boardroom......Page 532
Glossary......Page 539
Direct Exchange Rates over Time......Page 549
Index......Page 553
International Credit......Page 560
Crisis Timeline......Page 561