International Financial Management 7th edition

Cover......Page 1
Title......Page 4
Copyright......Page 5
Contents......Page 18
PART ONE: Foundations of International Financial Management......Page 26
CHAPTER 1 Globalization and the Multinational Firm......Page 27
Foreign Exchange and Political Risks......Page 28
Market Imperfections......Page 29
CHAPTER......Page 30
Goals for International Financial Management......Page 31
Emergence of Globalized Financial Markets......Page 33
Emergence of the Euro as a Global Currency......Page 34
Europe's Sovereign Debt Crisis of 2010......Page 35
Trade Liberalization and Economic Integration......Page 36
Privatization......Page 38
Global Financial Crisis of 2008–2009......Page 39
Multinational Corporations......Page 41
INTERNATIONAL FINANCE IN PRACTICE: Multinationals More Efficient......Page 42
Summary......Page 44
MINI CASE: Nike and Sweatshop Labor......Page 46
APPENDIX 1A: Gain from Trade: The Theory of Comparative Advantage......Page 48
Evolution of the International Monetary System......Page 50
Classical Gold Standard: 1875–1914......Page 51
Interwar Period: 1915–1944......Page 53
Bretton Woods System: 1945–1972......Page 54
The Flexible Exchange Rate Regime: 1973–Present......Page 57
The Current Exchange Rate Arrangements......Page 59
European Monetary System......Page 63
A Brief History of the Euro......Page 66
What Are the Benefits of Monetary Union?......Page 67
Costs of Monetary Union......Page 69
Prospects of the Euro: Some Critical Questions......Page 70
The Mexican Peso Crisis......Page 71
The Asian Currency Crisis......Page 74
Origins of the Asian Currency Crisis......Page 75
Lessons from the Asian Currency Crisis......Page 76
The Argentine Peso Crisis......Page 78
Fixed versus Flexible Exchange Rate Regimes......Page 79
Summary......Page 81
MINI CASE: Will the United Kingdom Join the Euro Club?......Page 83
Balance-of-Payments Accounting......Page 85
The Current Account......Page 87
The Capital Account......Page 89
Statistical Discrepancy......Page 91
Official Reserve Account......Page 92
Balance-of-Payments Trends in Major Countries......Page 95
INTERNATIONAL FINANCE IN PRACTICE: The Dollar and the Deficit......Page 97
Summary......Page 100
MINI CASE: Mexico's Balance-of-Payments Problem......Page 103
APPENDIX 3A: The Relationship Between Balance of Payments and National Income Accounting......Page 104
CHAPTER 4 Corporate Governance Around the World......Page 105
Governance of the Public Corporation: Key Issues......Page 106
The Agency Problem......Page 107
Board of Directors......Page 109
Concentrated Ownership......Page 110
INTERNATIONAL FINANCE IN PRACTICE: When Boards Are All in the Family......Page 111
Accounting Transparency......Page 112
Overseas Stock Listings......Page 113
Market for Corporate Control......Page 114
Law and Corporate Governance......Page 115
Ownership and Control Pattern......Page 118
Capital Markets and Valuation......Page 122
Objectives of Reform......Page 123
The Sarbanes-Oxley Act......Page 124
The Cadbury Code of Best Practice......Page 125
The Dodd-Frank Act......Page 126
Summary......Page 127
MINI CASE: Parmalat: Europe's Enron......Page 129
PART TWO: The Foreign Exchange Market, Exchange Rate Determination, and Currency Derivatives......Page 134
CHAPTER 5 The Market for Foreign Exchange......Page 135
Function and Structure of the FX Market......Page 136
FX Market Participants......Page 137
Correspondent Banking Relationships......Page 139
Spot Rate Quotations......Page 140
INTERNATIONAL FINANCE IN PRACTICE: Where Money Talks Very Loudly......Page 141
Cross-Exchange Rate Quotations......Page 145
The Bid-Ask Spread......Page 146
Spot FX Trading......Page 147
The Cross-Rate Trading Desk......Page 148
Spot Foreign Exchange Market Microstructure......Page 150
Forward Rate Quotations......Page 152
Forward Cross-Exchange Rates......Page 153
Swap Transactions......Page 155
Exchange-Traded Currency Funds......Page 157
Summary......Page 158
MINI CASE: Shrewsbury Herbal Products, Ltd.......Page 161
Interest Rate Parity......Page 163
Covered Interest Arbitrage......Page 165
Interest Rate Parity and Exchange Rate Determination......Page 168
Currency Carry Trade......Page 169
Reasons for Deviations from Interest Rate Parity......Page 170
Purchasing Power Parity......Page 172
Evidence on Purchasing Power Parity......Page 174
INTERNATIONAL FINANCE IN PRACTICE: McCurrencies......Page 175
Fisher Effects......Page 179
Forecasting Exchange Rates......Page 181
Efficient Market Approach......Page 182
Fundamental Approach......Page 183
Technical Approach......Page 184
Performance of the Forecasters......Page 185
Summary......Page 189
MINI CASE: Turkish Lira and Purchasing Power Parity......Page 193
APPENDIX 6A: Purchasing Power Parity and Exchange Rate Determination......Page 195
CHAPTER 7 Futures and Options on Foreign Exchange......Page 196
Futures Contracts: Some Preliminaries......Page 197
Currency Futures Markets......Page 199
INTERNATIONAL FINANCE IN PRACTICE: FX Market Volumes Surge......Page 200
Basic Currency Futures Relationships......Page 201
Currency Options Markets......Page 204
Basic Option-Pricing Relationships at Expiration......Page 205
American Option-Pricing Relationships......Page 208
European Option-Pricing Relationships......Page 210
Binomial Option-Pricing Model......Page 212
European Option-Pricing Formula......Page 214
Empirical Tests of Currency Options......Page 215
Summary......Page 216
MINI CASE: The Options Speculator......Page 218
PART THREE: Foreign Exchange Exposure and Management......Page 220
Three Types of Exposure......Page 221
Forward Market Hedge......Page 223
Money Market Hedge......Page 225
Options Market Hedge......Page 226
Hedging Foreign Currency Payables......Page 228
Money Market Instruments......Page 229
Currency Options Contracts......Page 230
Hedging Contingent Exposure......Page 231
Hedging Recurrent Exposure with Swap Contracts......Page 232
Hedging via Lead and Lag......Page 233
Should the Firm Hedge?......Page 234
What Risk Management Products Do Firms Use?......Page 236
Summary......Page 237
CASE APPLICATION: Richard May's Options......Page 241
CHAPTER 9 Management of Economic Exposure......Page 248
How to Measure Economic Exposure......Page 250
Operating Exposure: Definition......Page 253
Illustration of Operating Exposure......Page 254
Determinants of Operating Exposure......Page 256
Flexible Sourcing Policy......Page 259
Financial Hedging......Page 260
CASE APPLICATION: Exchange Risk Management at Merck......Page 261
Summary......Page 264
MINI CASE: Economic Exposure of Albion Computers PLC......Page 266
Current/Noncurrent Method......Page 268
Current Rate Method......Page 269
Financial Accounting Standards Board Statement 52......Page 270
The Mechanics of the FASB 52 Translation Process......Page 273
CASE APPLICATION: Consolidation of Accounts according to FASB 52: The Centralia Corporation......Page 274
Translation Exposure versus Transaction Exposure......Page 278
Balance Sheet Hedge......Page 279
Derivatives Hedge......Page 280
Summary......Page 281
MINI CASE: Sundance Sporting Goods, Inc.......Page 283
PART FOUR: World Financial Markets and Institutions......Page 286
International Banking Services......Page 287
The World's Largest Banks......Page 288
Types of International Banking Offices......Page 289
Foreign Branches......Page 290
Offshore Banking Centers......Page 291
Capital Adequacy Standards......Page 292
Eurocurrency Market......Page 295
Eurocredits......Page 297
Forward Rate Agreements......Page 299
Eurodollar Interest Rate Futures Contracts......Page 302
International Debt Crisis......Page 304
History......Page 305
Debt-for-Equity Swaps......Page 306
The Solution: Brady Bonds......Page 307
The Credit Crunch......Page 308
Impact of the Financial Crisis......Page 312
Economic Stimulus......Page 315
The Aftermath......Page 316
Summary......Page 317
MINI CASE: Detroit Motors' Latin American Expansion......Page 322
APPENDIX 11A: Eurocurrency Creation......Page 324
Foreign Bonds and Eurobonds......Page 327
Bearer Bonds and Registered Bonds......Page 328
Security Regulations that Ease Bond Issuance......Page 329
Types of Instruments......Page 330
Euro-Medium-Term Notes......Page 331
Dual-Currency Bonds......Page 332
Currency Distribution, Nationality, and Type of Issuer......Page 333
International Bond Market Credit Ratings......Page 334
INTERNATIONAL FINANCE IN PRACTICE: Heineken Refreshes Euromarket with Spectacular Unrated Bonds......Page 335
Primary Market......Page 336
Clearing Procedures......Page 341
International Bond Market Indexes......Page 342
Summary......Page 344
MINI CASE: Sara Lee Corporation's Eurobonds......Page 346
Market Capitalization of Developed Countries......Page 347
Market Capitalization of Developing Countries......Page 348
Measures of Liquidity......Page 349
Measures of Market Concentration......Page 351
Market Structure, Trading Practices, and Costs......Page 352
Market Consolidations and Mergers......Page 354
Cross-Listing of Shares......Page 355
American Depository Receipts......Page 357
Empirical Findings on Cross-Listing and ADRs......Page 361
International Equity Market Benchmarks......Page 363
iShares MSCI......Page 364
Factors Affecting International Equity Returns......Page 365
Industrial Structure......Page 366
Summary......Page 367
MINI CASE: San Pico's New Stock Exchange......Page 369
Types of Swaps......Page 371
Size of the Swap Market......Page 372
Basic Interest Rate Swap......Page 373
Basic Currency Swap......Page 376
Equivalency of Currency Swap Debt Service Obligations......Page 378
Pricing the Basic Currency Swap......Page 379
A Basic Currency Swap Reconsidered......Page 380
Risks of Interest Rate and Currency Swaps......Page 381
INTERNATIONAL FINANCE IN PRACTICE: Fallout from Greece's Swap......Page 382
Is the Swap Market Efficient?......Page 383
Summary......Page 384
MINI CASE: The Centralia Corporation's Currency Swap......Page 388
CHAPTER 15 International Portfolio Investment......Page 389
International Correlation Structure and Risk Diversification......Page 390
Optimal International Portfolio Selection......Page 392
Effects of Changes in the Exchange Rate......Page 399
International Bond Investment......Page 401
International Mutual Funds: A Performance Evaluation......Page 402
International Diversification through Country Funds......Page 404
International Diversification with ADRs......Page 407
International Diversification with Exchange-Traded Funds (ETFs)......Page 408
International Diversification with Hedge Funds......Page 409
Why Home Bias in Portfolio Holdings?......Page 410
International Diversification with Small-Cap Stocks......Page 411
Summary......Page 413
MINI CASE: Solving for the Optimal International Portfolio......Page 419
APPENDIX 15A: International Investment with Exchange Risk Hedging......Page 421
APPENDIX 15B: Solving for the Optimal Portfolio......Page 423
PART FIVE: Financial Management of the Multinational Firm......Page 426
CHAPTER 16 Foreign Direct Investment and Cross-Border Acquisitions......Page 427
Global Trends in FDI......Page 428
Imperfect Labor Market......Page 432
Intangible Assets......Page 433
Vertical Integration......Page 434
Product Life Cycle......Page 435
Cross-Border Mergers and Acquisitions......Page 436
Political Risk and FDI......Page 441
Summary......Page 448
MINI CASE: Enron versus Bombay Politicians......Page 450
Cost of Capital......Page 454
Cost of Capital in Segmented versus Integrated Markets......Page 455
Does the Cost of Capital Differ among Countries?......Page 457
CASE APPLICATION: Novo Industri......Page 459
Cross-Border Listings of Stocks......Page 461
Capital Asset Pricing under Cross-Listings......Page 466
The Effect of Foreign Equity Ownership Restrictions......Page 468
CASE APPLICATION: Nestlé......Page 469
Asset Pricing under Foreign Ownership Restrictions......Page 470
The Financial Structure of Subsidiaries......Page 472
Summary......Page 475
APPENDIX 17A: Pricing of Nontradable Assets: Numerical Simulations......Page 479
CHAPTER 18 International Capital Budgeting......Page 480
Review of Domestic Capital Budgeting......Page 481
The Adjusted Present Value Model......Page 482
Capital Budgeting from the Parent Firm's Perspective......Page 484
Generality of the APV Model......Page 486
CASE APPLICATION: The Centralia Corporation......Page 487
Risk Adjustment in the Capital Budgeting Analysis......Page 491
Real Options......Page 492
Summary......Page 494
MINI CASE 1: Dorchester, Ltd.......Page 496
MINI CASE 2: Strik-it-Rich Gold Mining Company......Page 497
CASE APPLICATION: Teltrex's Cash Management System......Page 499
Bilateral Netting of Internal and External Net Cash Flows......Page 504
Reduction in Precautionary Cash Balances......Page 506
Cash Management Systems in Practice......Page 507
Summary......Page 508
MINI CASE 2: Eastern Trading Company's New MBA......Page 509
A Typical Foreign Trade Transaction......Page 510
Government Assistance in Exporting......Page 513
The Export-Import Bank and Affiliated Organizations......Page 514
Forms of Countertrade......Page 515
Some Generalizations about Countertrade......Page 517
Summary......Page 518
MINI CASE: American Machine Tools, Inc.......Page 520
Tax Neutrality......Page 521
Income Tax......Page 522
Value-Added Tax......Page 524
Territorial Taxation......Page 526
Branch and Subsidiary Income......Page 527
Tax Havens......Page 528
Transfer Pricing and Related Issues......Page 529
CASE APPLICATION: Mintel Products Transfer Pricing Strategy......Page 530
INTERNATIONAL FINANCE IN PRACTICE: Transfer Pricing Is the Most Important International Tax Issue......Page 534
Miscellaneous Factors......Page 537
Blocked Funds......Page 538
Summary......Page 539
MINI CASE 1: Sigma Corp.'s Location Decision......Page 541
MINI CASE 2: Eastern Trading Company's Optimal Transfer Pricing Strategy......Page 542
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