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Tables of Contents for International Financial Management
Chapter/Section Title
Page #
Page Count
PART ONE Foundations of International Financial Management
2
134
Chapter 1 GLOBALIZATION AND THE MULTINATIONAL FIRM
2
29
What's Special about International Finance?
5
4
Foreign Exchange and Political Risks
6
1
Market Imperfections
6
2
Expanded Opportunity Set
8
1
Goals for International Financial Management
9
1
Globalization of the World Economy: Recent Trends
10
3
Privatization: The Theme of the Nineties
13
3
Multinational Corporations
16
2
Organization of the Text
18
5
Summary
23
8
Appendix 1A: Gains from Trade: The Theory of Comparative Advantage
28
3
Chapter 2 INTERNATIONAL MONETARY SYSTEM
31
27
Evolution of the International Monetary System
32
1
Bimetallism: Before 1875
32
1
Classical Gold Standard: 1875-1914
33
2
Interwar Period: 1915-1914
35
1
Bretton Woods System: 1945-1972
36
3
The Flexible Exchange Rate Regime: 1973-Present
39
2
The Current Exchange Rate Arrangements
41
3
European Monetary System
44
6
The Mexican Peso Crisis
50
2
Fixed versus Flexible Exchange Rate Regimes
52
2
Summary
54
4
Mini Case: The Prospect of the European Monetary Union (EMU)
56
2
Chapter 3 BALANCE OF PAYMENTS
58
18
Balance-of-Payments Accounting
59
1
Balance-of-Payments Accounts
60
6
The Current Account
60
3
The Capital Account
63
2
Statistical Discrepancy
65
1
Official Reserves Account
65
1
The Balance-of-Payments Identity
66
2
The Balance-of-Payments Trends in Major Countries
68
4
Summary
72
4
Mini Case: Mexico's Balance-of-Payments Problem
74
2
Chapter 4 THE MARKET FOR FOREIGN EXCHANGE
76
28
Function and Structure of the FOREX Market
77
5
FX Market Participants
78
1
Correspondent Banking Relationships
79
3
The Spot Market
82
11
Spot Rate Quotations
82
1
The Bid-Ask Spread
83
1
Spot FX Trading
84
1
Cross Exchange Rate Quotations
85
3
Alternate Expressions for the Cross-Exchange Rate
88
1
The Cross-Rate Trading Desk
89
1
Triangular Arbitrage
90
3
The Forward Market
93
6
Forward Rate Quotations
94
1
Long and Short Forward Positions
95
1
Forward Cross Exchange Rates
96
1
Swap Transactions
96
2
Forward Premium
98
1
Summary
99
5
Mini Case: Shrewsbury Herbal Products, Ltd.
101
3
Chapter 5 INTERNATIONAL PARITY RELATIONSHIPS AND FORECASTING FOREIGN EXCHANGE RATES
104
32
Interest Rate Parity
105
9
Covered Interest Arbitrage
107
3
Interest Rate Parity and Exchange Rate Determination
110
1
Reasons for Deviations from Interest Rate Parity
111
3
Purchasing Power Parity
114
8
Purchasing Power Parity and Exchange Rate Determination
115
2
PPP Deviations and the Real Exchange Rate
117
1
Evidence on Purchasing Power Parity
118
4
The Fisher Effects
122
1
Forecasting Exchange Rates
123
6
Efficient Market Approach
124
1
Fundamental Approach
125
1
Technical Approach
126
1
Performance of the Forecasters
127
2
Summary
129
7
PART TWO World Financial Markets and Institutions
136
176
Chapter 6 INTERNATIONAL BANKING AND MONEY MARKET
136
33
International Banking Services
137
3
The World's Largest Banks
137
3
Reasons for International Banking
140
1
Types of International Banking Offices
140
4
Correspondent Bank
141
1
Representative Offices
141
1
Foreign Branches
141
1
Subsidiary and Affiliate Banks
142
1
Edge Act Banks
143
1
Offshore Banking Centers
143
1
International Banking Facilities
144
1
Capital Adequacy Standards
144
2
International Money Market
146
10
Eurocurrency Market
146
3
Illustrated Mini Case: Eurocurrency Creation
149
2
Eurocredits
151
2
Forward Rate Agreements
153
1
Euronotes
154
1
Euro-Medium-Term Notes
155
1
Eurocommercial Paper
155
1
International Debt Crisis
156
7
History
156
2
Debt-for-Equity Swaps
158
3
The Solution: Brady Bonds
161
1
The Recent Situation
162
1
Summary
163
6
Mini Case: Detroit Motors' Latin American Expansion
166
3
Chapter 7 INTERNATIONAL BOND MARKET
169
25
The World's Bond Markets: A Statistical Perspective
170
1
Foreign Bonds and Eurobonds
170
4
Bearer Bonds and Registered Bonds
172
1
National Security Regulations
172
1
Withholding Taxes
173
1
Other Recent Regulatory Changes
173
1
Global Bonds
173
1
Types of Instruments
174
3
Straight Fixed-Rate Issues
174
1
Floating-Rate Notes
174
1
Equity-Related Bonds
175
1
Zero-Coupon Bonds
175
1
Dual-Currency Bonds
176
1
Composite Currency Bonds
177
1
Currency Distribution, Nationality, and Type of Issuer
177
2
International Bond Market Credit Ratings
179
4
Eurobond Market Structure and Practices
183
3
Primary Market
183
1
Secondary Market
184
2
Clearing Procedures
186
1
International Bond Market Indexes
186
4
Summary
190
4
Chapter 8 INTERNATIONAL EQUITY MARKETS
194
31
A Statistical Perspective
195
5
Market Capitalization of Developed Countries
195
1
Market Capitalization of Developing Countries
195
3
Measures of Liquidity
198
2
Measures of Market Concentration
200
1
International Equity Market Benchmarks
200
2
Market Structure, Trading Practices, and Costs
202
5
Trading in International Equities
207
10
Magnitude of International Equity Trading
211
1
Cross-Listing of Shares
211
3
Yankee Stock Offerings
214
1
Eurolist
214
1
American Depository Receipts
215
2
Factors Affecting International Equity Returns
217
1
Macroeconomic Factors
217
3
Exchange Rates
218
1
Industrial Structure
219
1
Summary
220
5
Chapter 9 FUTURES AND OPTIONS ON FOREIGN EXCHANGE
225
26
Futures Contracts: Some Preliminaries
226
2
Currency Futures Markets
228
2
Basic Currency Futures Relationships
230
1
Eurodollar Interest Rate Futures Contracts
231
2
Options Contracts: Some Preliminaries
233
1
Currency Options Markets
234
3
Currency Futures Options
237
1
Basic Option-Pricing Relationships at Expiration
238
3
American Option-Pricing Relationships
241
1
European Option-Pricing Relationships
242
2
A European Option-Pricing Formula
244
1
Empirical Tests of Currency Options
245
1
Summary
246
5
Mini Case: The Options Speculator
248
3
Chapter 10 CURRENCY AND INTEREST RATE SWAPS
251
22
Some Useful Definitions
252
1
Size of the Swap Market
252
2
The Swap Bank
254
1
Interest Rate Swaps
254
3
Basic Interest Rate Swap
254
3
Currency Swaps
257
7
Parallel Loans
257
2
Back-to-Back Loans
259
1
Institutional Difficulties of Parallel and Back-to-Back Loans
259
1
Basic Currency Swap
260
4
Swap Market Quotations
264
1
Variations of Basic Currency and Interest Rate Swaps
264
1
Risks of Interest Rate and Currency Swaps
265
1
Is the Swap Market Efficient?
266
1
Concluding Points about Swaps
267
1
Summary
268
5
Mini Case: The Centralia Corporation's Currency Swap
271
2
Chapter 11 INTERNATIONAL PORTFOLIO INVESTMENTS
273
39
International Correlation Structure and Risk Diversification
275
2
Optimal International Portfolio Selection
277
7
Effects of Changes in the Exchange Rate
284
2
International Bond Investment
286
1
International Mutual Funds: A Performance Evaluation
287
2
International Diversification through Country Funds
289
4
International Diversification with ADRs
293
3
Why Home Bias in Portfolio Holdings?
296
4
Summary
300
12
Mini Case: Solving for the Optimal International Portfolio
303
4
Appendix 11A: International Investment with Exchange Risk Hedging
307
1
Appendix 11B: Solving for the Optimal Portfolio
308
4
PART THREE Foreign Exchange Exposure and Management
312
76
Chapter 12 MANAGEMENT OF ECONOMIC EXPOSURE
312
23
Three Types of Exposure
313
2
How to Measure Economic Exposure
315
5
Operating Exposure: Definition
320
1
Illustration of Operating Exposure
321
3
Determinants of Operating Exposure
324
2
Managing Operating Exposure
326
5
Selecting Low-Cost Production Sites
326
1
Flexible Sourcing Policy
327
1
Diversification of the Market
328
1
R & D Efforts and Product Differentiation
328
1
Financial Hedging
328
1
Illustrated Mini Case: Exchange Risk Management at Merck
329
1
Step 1: Exchange Forecasting
329
1
Step 2: Assessing Strategic Plan Impact
330
1
Step 3: Deciding Whether to Hedge
330
1
Step 4: Selecting the Hedging Instruments
330
1
Step 5: Constructing a Hedging Program
330
1
Summary
331
4
Mini Case: Economic Exposure of Albion Computers PLC
333
2
Chapter 13 MANAGEMENT OF TRANSACTION EXPOSURE
335
28
Forward Market Hedge
336
3
Money Market Hedge
339
1
Options Market Hedge
340
3
Hedging Contingent Exposure
343
1
Hedging Recurrent Exposure
344
1
Hedging through Invoice Currency
345
1
Hedging via Lead and Lag
346
1
Exposure Netting
346
1
Should the Firm Hedge?
347
4
What Risk Management Products Do Firms Use?
351
1
Summary
352
11
Mini Case: Western Mining's Currency Exposure Management
355
8
Chapter 14 MANAGEMENT OF TRANSLATION EXPOSURE
363
25
Translation Methods
364
3
Current/Noncurrent Method
364
1
Monetary/Nonmonetary Method
364
1
Temporal Method
365
1
Current Rate Method
365
2
Financial Accounting Standards Board Statement 8
367
1
Financial Accounting Standards Board Statement 52
368
4
The Mechanics of the FASB 52 Translation Process
369
1
Highly Inflationary Economies
370
2
Illustrated Mini Case: Consolidation of Accounts According to FASB 52: The Centralia Corporation
372
5
Management of Translation Exposure
377
3
Translation Exposure versus Transaction Exposure
377
1
Hedging Translation Exposure
378
1
Balance Sheet Hedge
378
1
Derivatives Hedge
379
1
Translation Exposure versus Operating Exposure
380
1
Empirical Analysis of the Change from FASB 8 to FASB 52
380
1
Summary
381
7
Mini Case: Sundance Sporting Goods, Inc.
383
5
PART FOUR Financial Management of the Multinational Firm
388
136
Chapter 15 FOREIGN DIRECT INVESTMENT
388
32
Global Trends in FDI
389
5
Why Do Firms Invest Overseas?
394
7
Trade Barriers
394
1
Imperfect Labor Market
395
1
Intangible Assets
396
1
Vertical Integration
396
1
Product Life Cycle
397
2
Shareholder Diversification Services
399
2
Cross-Border Acquisitions
401
6
Political Risk and FDI
407
9
Summary
416
4
Chapter 16 INTERNATIONAL CAPITAL STRUCTURE AND THE COST OF CAPITAL
420
28
Cost of Capital
421
4
Cost of Capital in Segmented versus Integrated Markets
425
1
Does the Cost of Capital Differ among Countries?
426
4
Cross-Border Listings of Stocks
430
2
Capital Asset Pricing under Cross-Listings
432
4
The Effect of Foreign Equity Ownership Restrictions
436
4
Pricing-to-Market Phenomenon
437
1
Illustrated Mini Case: Nestle
437
1
Asset Pricing under Foreign Ownership Restrictions
438
2
The Financial Structure of Subsidiaries
440
3
Summary
443
5
Appendix 16A: Pricing of Nontradable Assets
447
1
Chapter 17 INTERNATIONAL CAPITAL BUDGETING
448
17
Review of Domestic Capital Budgeting
449
1
The Adjusted Present Value Model
450
2
Capital Budgeting from the Parent Firm's Perspective
452
4
Generality of the APV Model
455
1
Estimating the Future Expected Exchange Rate
456
1
Illustrated Mini Case: The Centralia Corporation
456
4
Risk Adjustment in the Capital Budgeting Analysis
460
1
Sensitivity Analysis
460
1
Summary
461
4
Mini Case: Dorchester, Ltd.
462
3
Chapter 18 MULTINATIONAL CASH MANAGEMENT
465
27
The Management of International Cash Balances
466
1
Illustrated Mini Case: Teltrex's Cash Management System
466
8
Netting Systems
467
2
Centralized Cash Depository
469
3
Bilateral Netting of Internal and External Net Cash Flows
472
1
Reduction in Precautionary Cash Balances
473
1
Cash Management Systems in Practice
474
1
Transfer Pricing and Related Issues
475
3
Illustrated Mini Case: Mintel Products Transfer Pricing Strategy
478
8
Low versus High Markup Policy
478
1
Exchange Restrictions
479
1
Differential Income Tax Rates
479
1
Regulations Affecting Transfer Prices
480
1
Import Duties
481
3
Unbundling Fund Transfers
484
1
Miscellaneous Factors
485
1
Blocked Funds
486
1
Summary
487
5
Mini Case 1: Efficient Funds Flow at Eastern Trading Company
489
1
Mini Case 2: Eastern Trading Company's Optimal Transfer Pricing Strategy
489
1
Mini Case 3: Eastern Trading Company's New MBA
490
2
Chapter 19 EXPORTS AND IMPORTS
492
13
A Typical Foreign Trade Transaction
493
3
Forfaiting
496
1
Government Assistance in Exporting
497
1
The Export-Import Bank and Affiliated Organizations
497
1
Countertrade
498
3
Forms of Countertrade
499
1
Some Generalizations about Countertrade
500
1
Summary
501
4
Chapter 20 INTERNATIONAL TAX ENVIRONMENT
505
19
The Objectives of Taxation
506
1
Tax Neutrality
506
1
Tax Equity
507
1
Types of Taxation
507
5
Income Tax
507
2
Withholding Tax
509
2
Value-Added Tax
511
1
National Tax Environments
512
3
Worldwide Taxation
513
1
Territorial Taxation
514
1
Foreign Tax Credits
514
1
Organizational Structures for Reducing Tax Liabilities
515
6
Branch and Subsidiary Income
515
2
Payments to and from Foreign Affiliates
517
1
Tax Havens
518
1
Controlled Foreign Corporation
519
1
Foreign Sales Corporation
519
1
U.S. Possessions Corporations
520
1
Summary
521
3
GLOSSARY
524
8
INDEX
532