International Money and Finance, Eighth Edition

Front Cover......Page 1
International Money and Finance......Page 4
Copyright Page......Page 5
Contents......Page 6
Preface......Page 12
Acknowledgments......Page 14
Finance and the Multinational Firm......Page 16
The Actors......Page 17
Plan of Attack......Page 18
I. The International Monetary Environment......Page 20
Foreign Exchange Trading Volume......Page 22
Geographic Foreign Exchange Rate Activity......Page 23
Spot Exchange Rates......Page 26
Currency Arbitrage......Page 29
Short-term Foreign Exchange Rate Movements......Page 32
Long-term Foreign Exchange Movements......Page 35
Summary......Page 37
Exercises......Page 38
Appendix 1A:Trade-weighted Exchange Rate Indexes......Page 39
Appendix 1B: The Top Foreign Exchange Dealers......Page 42
The Gold Standard: 1880 to 1914......Page 44
The Interwar Period: 1918 to 1939......Page 46
The Bretton Woods Agreement: 1944 to 1973......Page 47
Central Bank Intervention during Bretton Woods......Page 49
The Breakdown of the Bretton Woods......Page 51
The Transition Years: 1971 to 1973......Page 52
International Reserve Currencies......Page 53
Floating Exchange Rates: 1973 to the Present......Page 58
Currency Boards and “Dollarization”......Page 60
The Choice of an Exchange Rate System......Page 63
Optimum Currency Areas......Page 67
The European Monetary System and the Euro......Page 68
Summary......Page 70
Exercises......Page 71
Appendix 2A: Current Exchange Practices of Specific Countries......Page 72
3 The Balance of Payments......Page 78
Current Account......Page 81
Financing the Current Account......Page 84
Additional Summary Measures......Page 87
Transactions Classifications......Page 88
Balance of Payments Equilibrium and Adjustment......Page 90
The U.S. Foreign Debt......Page 93
How Bad is the U.S. Foreign Debt?......Page 94
Summary......Page 98
Exercises......Page 99
Further Reading......Page 100
II. International Parity Conditions......Page 102
4 Forward-looking Market Instruments......Page 104
Forward Rates......Page 105
Swaps......Page 106
Futures......Page 110
Options......Page 113
Recent Practices......Page 116
Summary......Page 117
Exercises......Page 118
Further Reading......Page 119
Reasons for Offshore Banking......Page 120
Libor......Page 122
Interest Rate Spreads and Risk......Page 124
International Banking Facilities......Page 125
Offshore Banking Practices......Page 127
Summary......Page 130
Further Reading......Page 131
Interest Parity......Page 134
Exchange Rates, Interest Rates, and Inflation......Page 138
Expected Exchange Rates and the Term Structure of Interest Rates......Page 140
Summary......Page 143
Further Reading......Page 144
What are logarithms?......Page 145
Why use logarithms in financial research?......Page 146
7 Prices and Exchange Rates: Purchasing Power Parity......Page 148
Absolute Purchasing Power Parity......Page 149
The Big Mac Index......Page 150
Relative Purchasing Power Parity......Page 152
Time, Inflation, and PPP......Page 153
Deviations from PPP......Page 154
Overvalued and Undervalued Currencies......Page 158
Real Exchange Rates......Page 162
Summary......Page 163
Further Reading......Page 164
Appendix 7.A: The effect on PPP by relative price changes......Page 165
III. Risk and International Capital Flows......Page 168
Types of Foreign Exchange Risk......Page 170
Foreign Exchange Risk Premium......Page 174
Market Efficiency......Page 178
Foreign Exchange Forecasting......Page 179
Summary......Page 182
Further Reading......Page 183
Financial Control......Page 186
Cash Management......Page 188
Letters of Credit......Page 191
An Example of Trade Financing......Page 193
Intrafirm Transfers......Page 195
Capital Budgeting......Page 197
Summary......Page 200
Exercises......Page 201
Appendix 9A: Present Value......Page 202
Portfolio Diversification......Page 204
Reasons for Incomplete Portfolio Diversification......Page 208
International Investment Opportunities......Page 210
The Globalization of Equity Markets......Page 213
Summary......Page 216
Exercises......Page 217
Further Reading......Page 218
Direct Foreign Investment......Page 220
Capital Flight......Page 222
Capital Inflow Issues......Page 223
International Lending and Crisis......Page 224
International Lending and the Great Recession......Page 228
IMF Conditionality......Page 233
Country Risk Analysis......Page 235
Summary......Page 238
Exercises......Page 239
Further Reading......Page 240
IV. Modeling the Exchange Rate and Balance of Payments......Page 242
Elasticities Approach to the Balance of Trade......Page 244
Elasticities and the J-Curve......Page 248
Currency Contract Period......Page 249
Pass-Through Analysis......Page 251
The Marshall-Lerner Condition......Page 255
The Evidence from Devaluations......Page 257
Absorption Approach to the Balance of Trade......Page 258
Summary......Page 260
Further Reading......Page 261
Internal and External Macroeconomic Equilibrium......Page 264
The IS Curve......Page 265
The LM Curve......Page 268
Equilibrium......Page 270
Shifting the BP Curve......Page 271
Monetary Policy under Fixed Exchange Rates......Page 272
Fiscal Policy under Fixed Exchange Rates......Page 274
Monetary Policy under Floating Exchange Rates......Page 275
Fiscal Policy under Floating Exchange Rates......Page 277
Using the IS-LM-BP Approach: The Asian Financial Crisis......Page 278
International Policy Coordination......Page 281
Summary......Page 283
Exercises......Page 284
Further Reading......Page 285
Appendix 13A: The Open-Economy Multiplier......Page 286
14 The Monetary Approach......Page 290
The Monetary Approach......Page 291
The Monetary Approach to the Balance of Payments......Page 294
Monetary Approach to the Exchange Rate......Page 297
Sterilization......Page 298
Sterilized Intervention......Page 300
Summary......Page 301
Exercises......Page 302
Further Reading......Page 303
15 Extensions to the Monetary Approach of Exchange Rate Determination......Page 304
The Portfolio-Balance Approach......Page 305
The Trade Balance Approach......Page 307
The Overshooting Approach......Page 309
The Currency Substitution Approach......Page 312
Recent Innovations to Open-Economy Macroeconomics......Page 314
Summary......Page 316
Exercises......Page 317
Further Reading......Page 318
Glossary......Page 320
Index......Page 326