International Financial Management , Ninth Edition

Front Cover......Page 1
Title Page......Page 2
Copyright......Page 3
Contents......Page 8
Preface......Page 18
Part 1: The International Financial Environment......Page 28
Managing the MNC......Page 29
Governance: How SOX Improved Corporate Governance of MNCs......Page 30
Why Firms Pursue International Business......Page 32
How Firms Engage in International Business......Page 34
Valuation Model for an MNC......Page 38
Organization of the Text......Page 42
Self Test......Page 43
Questions and Applications......Page 44
Blades, Inc. Case: Decision to Expand Internationally......Page 46
Small Business Dilemma: Developing a Multinational Sporting Goods Corporation......Page 47
Internet/Excel Exercises......Page 48
Balance of Payments......Page 49
International Trade Flows......Page 52
International Trade Issues......Page 55
Governance: Should Managers Outsource to Satisfy Shareholders?......Page 60
Factors Affecting International Trade Flows......Page 61
Correcting a Balance-of-Trade Deficit......Page 63
International Capital Flows......Page 65
Agencies That Facilitate International Flows......Page 69
Summary......Page 72
Questions and Applications......Page 73
Blades, Inc. Case: Exposure to International Flow of Funds......Page 74
Small Business Dilemma: Identifying Factors That Will Affect the Foreign Demand at the Sports Exports Company......Page 75
Internet/Excel Exercises......Page 76
Foreign Exchange Market......Page 77
International Money Market......Page 86
International Credit Market......Page 90
International Bond Market......Page 91
International Stock Markets......Page 93
Governance: Effect of Sarbanes-Oxley Act on Foreign Stock Offerings......Page 95
How Financial Markets Facilitate MNC Functions......Page 97
Summary......Page 98
Questions and Applications......Page 99
Blades, Inc. Case: Decisions to Use International Financial Markets......Page 101
Internet/Excel Exercises......Page 102
Appendix 3: Investing in International Financial Markets......Page 103
Measuring Exchange Rate Movements......Page 112
Exchange Rate Equilibrium......Page 113
Factors That Influence Exchange Rates......Page 116
Speculating on Anticipated Exchange Rates......Page 122
Point Counter-Point: How Can Persistently Weak Currencies Be Stabilized?......Page 124
Questions and Applications......Page 125
Small Business Dilemma: Assessment by the Sports Exports Company of Factors That Affect the British Pound’s Value......Page 128
Internet/Excel Exercises......Page 129
Forward Market......Page 130
Currency Futures Market......Page 135
Currency Options Market......Page 141
Currency Call Options......Page 142
Currency Put Options......Page 146
Contingency Graphs for Currency Options......Page 149
Conditional Currency Options......Page 151
Point Counter-Point: Should Speculators Use Currency Futures or Options?......Page 153
Questions and Applications......Page 154
Blades, Inc. Case: Use of Currency Derivative Instruments......Page 160
Internet/Excel Exercises......Page 161
Appendix 5A: Currency Option Pricing......Page 162
Appendix 5B: Currency Option Combinations......Page 166
Part 1 Integrative Problem: The International Financial Environment......Page 179
Part 2: Exchange Rate Behavior......Page 180
Exchange Rate Systems......Page 181
A Single European Currency......Page 191
Government Intervention......Page 194
Intervention as a Policy Tool......Page 199
Point Counter-Point: Should China Be Forced to Alter the Value of Its Currency?......Page 201
Questions and Applications......Page 202
Blades, Inc. Case: Assessment of Government Influence on Exchange Rates......Page 204
Internet/Excel Exercises......Page 205
Appendix 6: Government Intervention during the Asian Crisis......Page 206
International Arbitrage......Page 215
Interest Rate Parity (IRP)......Page 225
Summary......Page 234
Self Test......Page 235
Questions and Applications......Page 236
Blades, Inc. Case: Assessment of Potential Arbitrage Opportunities......Page 238
Internet/Excel Exercise......Page 240
Purchasing Power Parity (PPP)......Page 241
International Fisher Effect (IFE)......Page 250
Comparison of the IRP, PPP, and IFE Theories......Page 258
Summary......Page 259
Self Test......Page 260
Questions and Applications......Page 261
Blades, Inc. Case: Assessment of Purchasing Power Parity......Page 265
Internet/Excel Exercises......Page 266
Part 2 Integrative Problem: Exchange Rate Behavior......Page 267
Midterm Self Exam......Page 268
Part 3: Exchange Rate Risk Management......Page 276
Why Firms Forecast Exchange Rates......Page 277
Forecasting Techniques......Page 279
Forecasting Services......Page 289
Forecast Error......Page 290
Using Interval Forecasts......Page 297
Point Counter-Point: Which Exchange Rate Forecast Technique Should MNCs Use?......Page 299
Questions and Applications......Page 300
Blades, Inc. Case: Forecasting Exchange Rates......Page 304
Internet/Excel Exercises......Page 305
Is Exchange Rate Risk Relevant?......Page 307
Types of Exposure......Page 308
Transaction Exposure......Page 309
Economic Exposure......Page 316
Translation Exposure......Page 322
Summary......Page 324
Self Test......Page 325
Questions and Applications......Page 326
Blades, Inc. Case: Assessment of Exchange Rate Exposure......Page 331
Small Business Dilemma: Assessment of Exchange Rate Exposure by the Sports Exports Company......Page 332
Internet/Excel Exercises......Page 333
Transaction Exposure......Page 334
Hedging Exposure to Payables......Page 335
Hedging Exposure to Receivables......Page 343
Limitations of Hedging......Page 353
Hedging Long-Term Transaction Exposure......Page 355
Alternative Hedging Techniques......Page 356
Point Counter-Point: Should an MNC Risk Overhedging?......Page 357
Questions and Applications......Page 358
Blades, Inc. Case: Management of Transaction Exposure......Page 365
Small Business Dilemma: Hedging Decisions by the Sports Exports Company......Page 366
Internet/Excel Exercises......Page 367
Appendix 11: Nontraditional Hedging Techniques......Page 368
Economic Exposure......Page 373
A Case Study in Hedging Economic Exposure......Page 379
Hedging Exposure to Fixed Assets......Page 383
Managing Translation Exposure......Page 384
Summary......Page 386
Self Test......Page 387
Questions and Applications......Page 388
Blades, Inc. Case: Assessment of Economic Exposure......Page 390
Internet/Excel Exercises......Page 391
Part 3 Integrative Problem: Exchange Rate Risk Management......Page 393
Part 4: Long-Term Asset and Liability Management......Page 396
Motives for Direct Foreign Investment......Page 397
Governance: Selfish Managerial Motives for DFI......Page 400
Benefits of International Diversification......Page 402
Host Government Views of DFI......Page 407
Point Counter-Point: Should MNCs Avoid DFI in Countries with Liberal Child Labor Laws?......Page 409
Questions and Applications......Page 410
Blades, Inc. Case: Consideration of Direct Foreign Investment......Page 412
Internet/Excel Exercises......Page 413
Subsidiary versus Parent Perspective......Page 414
Input for Multinational Capital Budgeting......Page 416
Multinational Capital Budgeting Example......Page 418
Factors to Consider in Multinational Capital Budgeting......Page 422
Adjusting Project Assessment for Risk......Page 431
Point Counter-Point: Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects?......Page 433
Questions and Applications......Page 434
Blades, Inc. Case: Decision by Blades, Inc., to Invest in Thailand......Page 439
Internet/Excel Exercises......Page 441
Appendix 14: Incorporating International Tax Laws in Multinational Capital Budgeting......Page 442
Background on International Acquisitions......Page 449
Factors That Affect the Expected Cash Flows of the Foreign Target......Page 452
Example of the Valuation Process......Page 454
Why Valuations of a Target May Vary among MNCs......Page 460
Other Types of Multinational Restructuring......Page 461
Restructuring Decisions as Real Options......Page 464
Summary......Page 465
Questions and Applications......Page 466
Blades, Inc. Case: Assessment of an Acquisition in Thailand......Page 470
Internet/Excel Exercises......Page 472
Why Country Risk Analysis Is Important......Page 473
Political Risk Factors......Page 474
Financial Risk Factors......Page 477
Types of Country Risk Assessment......Page 478
Techniques to Assess Country Risk......Page 480
Measuring Country Risk......Page 481
Actual Country Risk Ratings across Countries......Page 484
Incorporating Country Risk in Capital Budgeting......Page 486
Governance: Governance over the Assessment of Country Risk......Page 489
Reducing Exposure to Host Government Takeovers......Page 490
Self Test......Page 492
Questions and Applications......Page 493
Blades, Inc. Case: Country Risk Assessment......Page 496
Internet/Excel Exercises......Page 498
Background on Cost of Capital......Page 499
Cost of Capital for MNCs......Page 500
Costs of Capital across Countries......Page 504
Using the Cost of Capital for Assessing Foreign Projects......Page 508
The MNC’s Capital Structure Decision......Page 513
Interaction between Subsidiary and Parent Financing Decisions......Page 516
Local versus Global Target Capital Structure......Page 519
Point Counter-Point: Should the Reduced Tax Rate on Dividends Affect an MNC’s Capital Structure?......Page 520
Questions and Applications......Page 521
Blades, Inc. Case: Assessment of Cost of Capital......Page 524
Internet/Excel Exercise......Page 526
Long-Term Financing Decision......Page 527
Cost of Debt Financing......Page 528
Assessing the Exchange Rate Risk of Debt Financing......Page 533
Reducing Exchange Rate Risk......Page 534
Interest Rate Risk from Debt Financing......Page 542
Self Test......Page 548
Questions and Applications......Page 549
Blades, Inc. Case: Use of Long-Term Financing......Page 551
Small Business Dilemma: Long-Term Financing Decision by the Sports Exports Company......Page 552
Internet/Excel Exercises......Page 553
Part 4 Integrative Problem: Long-Term Asset and Liability Management......Page 554
Part 5: Short-Term Asset and Liability Management......Page 556
Payment Methods for International Trade......Page 557
Trade Finance Methods......Page 560
Agencies That Motivate International Trade......Page 569
Questions and Applications......Page 572
Blades, Inc. Case: Assessment of International Trade Financing in Thailand......Page 573
Internet/Excel Exercise......Page 575
Sources of Short-Term Financing......Page 576
Why MNCs Consider Foreign Financing......Page 577
Determining the Effective Financing Rate......Page 579
Criteria Considered for Foreign Financing......Page 580
Financing with a Portfolio of Currencies......Page 585
Self Test......Page 591
Questions and Applications......Page 592
Blades, Inc. Case: Use of Foreign Short-Term Financing......Page 594
Internet/Excel Exercises......Page 595
Multinational Management of Working Capital......Page 596
Governance: Monitoring of MNC Cash Positions......Page 598
Techniques to Optimize Cash Flows......Page 599
Investing Excess Cash......Page 603
Summary......Page 613
Questions and Applications......Page 614
Blades, Inc. Case: International Cash Management......Page 616
Internet/Excel Exercises......Page 617
Appendix 21: Investing in a Portfolio of Currencies......Page 619
Part 5 Integrative Problem: Short-Term Asset and Liability Management......Page 623
Final Self Exam......Page 625
Appendix A: Answers to Self Test Questions......Page 633
Appendix B: Supplemental Cases......Page 645
Appendix C: Using Excel to Conduct Analysis......Page 667
Appendix D: International Investing Project......Page 674
Appendix E: Discussion in the Boardroom......Page 677
Glossary......Page 685
Index......Page 692