International Financial Management 7th edition

Description

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 C......Page 543 E......Page 544 F......Page 545 M......Page 546 P......Page 547 S......Page 548 Z......Page 549 B......Page 550 C......Page 551 E......Page 554 F......Page 556 H......Page 558 I......Page 559 L......Page 561 M......Page 562 O......Page 563 P......Page 564 S......Page 565 T......Page 567 V......Page 568 W......Page 569 Z......Page 570