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International Financial Management

ISBN: 9780072521276 | 0072521279
Edition: 3rd
Format: Hardcover
Publisher: McGraw-Hill/Irwin
Pub. Date: 6/19/2003

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SummaryTable of Contents
The overriding objective of Eun and Resnick's International Financial Management, 3e is to teach students how to be effective global financial managers. The text covers the fundamentals of the macroeconomic environment of international financial management, discusses the financial environment in which the multinational firm and its managers must function, and covers foreign exchange management and financial management in a multinational firm.
PART ONE Foundations of International Financial Management
Globalization and the Multinational Firm
4(22)
... MORE
What's Special about International Finance?
5(2)
Foreign Exchange and Political Risks
5(1)
Market Imperfections
6(1)
Expanded Opportunity Set
7(1)
Goals for International Financial Management
7(2)
Globalization of the World Economy: Recent Trends
9(9)
Emergence of Globalized Financial Markets
9(1)
Advent of the Euro
10(1)
Trade Liberalization and Economic Integration
11(1)
International Finance in Practice: Why We Believe in the Euro
12(2)
Privatization
14(1)
Multinational Corporations
15(2)
International Finance in Practice: Multinationals More Efficient
17(1)
Organization of the Text
18(3)
Summary
21(2)
Mini Case: Nike's Decision
23(1)
Appendix 1A: Gains from Trade: The Theory of Comparative Advantage
24(2)
International Monetary System
26(32)
Evolution of the International Monetary System
26(1)
Bimetallism: Before 1875
27(1)
Classical Gold Standard: 1875--1914
27(2)
Interwar Period: 1915--1944
29(1)
Bretton Woods System: 1945--1972
30(3)
The Flexible Exchange Rate Regime: 1973--Present
33(1)
The Current Exchange Rate Arrangements
34(4)
European Monetary System
38(2)
The Euro and the European Monetary Union
40(7)
A Brief History of the Euro
40(1)
What Are the Benefits of the Monetary Union?
41(2)
Costs of Monetary Union
43(1)
International Finance in Practice: Mundell Wins Nobel Prize in Economics
44(1)
Prospects of the Euro: Some Critical Questions
44(2)
International Finance in Practice: The New World Order of Finance
46(1)
The Mexican Peso Crisis
47(1)
The Asian Currency Crisis
48(4)
Origins of the Asian Currency Crisis
49(2)
Lessons from the Asian Currency Crisis
51(1)
Fixed versus Flexible Exchange Rate Regimes
52(2)
Summary
54(3)
Mini Case: Will the U.K. Join the Euro Club?
57(1)
Balance of Payments
58(16)
Balance-of-Payments Accounting
58(1)
Balance-of-Payments Accounts
59(6)
The Current Account
60(2)
The Capital Account
62(2)
Statistical Discrepancy
64(1)
Official Reserve Account
64(1)
The Balance-of-Payments Identity
65(2)
Balance-of-Payments Trends in Major Countries
67(3)
International Finance in Practice: The Dollar and the Deficit
69(1)
Summary
70(2)
Mini Case: Mexico's Balance-of-Payments Problem
72(1)
Appendix 3A: The Relationship between Balance of Payments and National Income Accounting
73(1)
The Market for Foreign Exchange
74(25)
Function and Structure of the FOREX Market
75(4)
FX Market Participants
76(1)
Correspondent Banking Relationships
77(1)
International Finance in Practice: Fearless Dealers
78(1)
The Spot Market
79(11)
Spot Rate Quotations
79(2)
The Bid-Ask Spread
81(1)
Spot FX Trading
82(1)
Cross-Exchange Rate Quotations
83(1)
International Finance in Practice: Young Traders Run Currency Markets
84(1)
Alternative Expressions for the Cross-Exchange Rate
85(1)
The Cross-Rate Trading Desk
86(1)
Triangular Arbitrage
87(1)
Spot Foreign Exchange Market Microstructure
88(2)
The Forward Market
90(4)
Forward Rate Quotations
90(1)
Long and Short Forward Positions
91(1)
Forward Cross-Exchange Rates
92(1)
Swap Transactions
92(1)
Forward Premium
93(1)
Summary
94(3)
Mini Case: Shrewsbury Herbal Products, Ltd.
97(2)
International Parity Relationships and Forecasting Foreign Exchange Rates
99(31)
Interest Rate Parity
99(8)
Covered Interest Arbitrage
101(3)
Interest Rate Parity and Exchange Rate Determination
104(1)
Reasons for Deviations from Interest Rate Parity
105(2)
Purchasing Power Parity
107(6)
PPP Deviations and the Real Exchange Rate
108(2)
International Finance in Practice: Big MacCurrencies
110(1)
Evidence on Purchasing Power Parity
110(3)
The Fisher Effects
113(1)
Forecasting Exchange Rates
114(7)
Efficient Market Approach
115(1)
Fundamental Approach
116(1)
Technical Approach
117(1)
Performance of the Forecasters
118(3)
Summary
121(3)
Mini Case: Turkish Lira and Purchasing Power Parity
124(2)
Appendix 5A: Purchasing Power Parity and Exchange Rate Determination
126(4)
PART TWO World Financial Markets and Institutions
International Banking and Money Market
130(27)
International Banking Services
130(1)
The World's Largest Banks
131(1)
Reasons for International Banking
131(2)
Types of International Banking Offices
133(3)
Correspondent Bank
133(1)
Representative Offices
133(1)
Foreign Branches
134(1)
Subsidiary and Affiliate Banks
134(1)
Edge Act Banks
134(1)
Offshore Banking Centers
135(1)
International Banking Facilities
135(1)
Capital Adequacy Standards
136(2)
International Money Market
138(5)
Eurocurrency Market
138(2)
Eurocredits
140(1)
Forward Rate Agreements
141(2)
Euronotes
143(1)
Eurocommercial Paper
143(1)
International Debt Crisis
143(5)
History
144(1)
Debt-for-Equity Swaps
145(1)
International Finance in Practice: LDC Lenders Should Have Listened to David Hume
146(1)
The Solution: Brady Bonds
147(1)
Japanese Banking Crisis
148(1)
The Asian Crisis
149(1)
Summary
149(3)
Mini Case: Detroit Motors' Latin American Expansion
152(3)
Appendix 6A: Eurocurrency Creation
155(2)
International Bond Market
157(19)
The World's Bond Markets: A Statistical Perspective
157(1)
Foreign Bonds and Eurobonds
157(3)
Bearer Bonds and Registered Bonds
158(1)
National Security Regulations
159(1)
Withholding Taxes
159(1)
Other Recent Regulatory Changes
159(1)
Global Bonds
160(1)
Types of Instruments
160(3)
Straight Fixed-Rate Issues
160(1)
Euro-Medium-Term Notes
160(1)
Floating-Rate Notes
161(1)
Equity-Related Bonds
161(1)
Zero-Coupon Bonds
162(1)
Dual-Currency Bonds
162(1)
Currency Distribution, Nationality, and Type of Issuer
163(1)
International Bond Market Credit Ratings
163(2)
International Finance in Practice: Sara Lee Corp. Offers 3-Year Eurobonds at 6%
164(1)
Eurobond Market Structure and Practices
165(5)
Primary Market
165(3)
Secondary Market
168(2)
Clearing Procedures
170(1)
International Bond Market Indexes
170(3)
Summary
173(2)
Mini Case: Sara Lee Corporation's Eurobonds
175(1)
International Equity Markets
176(24)
A Statistical Perspective
176(5)
Market Capitalization of Developed Countries
176(1)
Market Capitalization of Developing Countries
177(2)
Measures of Liquidity
179(1)
Measures of Market Concentration
180(1)
Market Structure, Trading Practices, and Costs
181(2)
International Equity Market Benchmarks
183(4)
World Equity Benchmark Shares
187(1)
Trading in International Equities
188(6)
Cross-Listing of Shares
188(2)
Yankee Stock Offerings
190(1)
The European Stock Market
190(1)
American Depository Receipts
191(2)
Global Registered Shares
193(1)
Factors Affecting International Equity Returns
194(2)
Macroeconomic Factors
194(1)
Exchange Rates
194(1)
Industrial Structure
194(1)
International Finance in Practice: Buying Foreign Stocks from U.S. Brokers Gets Easier
195(1)
Summary
196(2)
Mini Case: San Pico's New Stock Exchange
198(2)
Futures and Options on Foreign Exchange
200(27)
Futures Contracts: Some Preliminaries
200(3)
Currency Futures Markets
203(1)
Basic Currency Futures Relationships
204(2)
Eurodollar Interest Rate Futures Contracts
206(3)
Options Contracts: Some Preliminaries
209(1)
Currency Options Markets
209(1)
Currency Futures Options
210(2)
International Finance in Practice: Commodities: Why Isn't Turmoil Sparking Future Boom?
211(1)
Basic Option-Pricing Relationships at Expiration
212(4)
American Option-Pricing Relationships
216(1)
European Option-Pricing Relationships
216(2)
Binomial Option-Pricing Model
218(2)
European Option-Pricing Formula
220(1)
Empirical Tests of Currency Options
221(1)
Summary
221(4)
Mini Case: The Options Speculator
225(2)
Currency and Interest Rate Swaps
227(20)
Types of Swaps
227(1)
Size of the Swap Market
228(1)
The Swap Bank
228(1)
International Finance in Practice: The World Bank's First Currency Swap
229(1)
Interest Rate Swaps
229(2)
Basic Interest Rate Swap
229(2)
Currency Swaps
231(6)
Parallel Loans
232(1)
Back-to-Back Loans
233(1)
Institutional Difficulties of Parallel and Back-to-Back Loans
234(1)
Basic Currency Swap
234(3)
Swap Market Quotations
237(1)
Variations of Basic Currency and Interest Rate Swaps
238(1)
Risks of Interest Rate and Currency Swaps
238(2)
International Finance in Practice: Eli Lilly and Company: The Case of the Appreciating Yen
239(1)
Is the Swap Market Efficient?
240(1)
Concluding Points about Swaps
241(1)
Summary
241(5)
Mini Case: The Centralia Corporation's Currency Swap
246(1)
International Portfolio Investment
247(35)
International Correlation Structure and Risk Diversification
248(2)
Optimal International Portfolio Selection
250(6)
Effects of Changes in the Exchange Rate
256(2)
International Bond Investment
258(1)
International Mutual Funds: A Performance Evaluation
259(2)
International Diversification through Country Funds
261(4)
International Diversification with ADRs
265(1)
International Diversification with WEBS
265(1)
International Finance in Practice: Live Here, Invest Abroad
266(1)
Why Home Bias in Portfolio Holdings?
266(4)
Summary
270(4)
Mini Case: Solving for the Optimal International Portfolio
274(2)
Appendix 11A: International Investment with Exchange Risk Hedging
276(2)
Appendix 11B: Solving for the Optimal Portfolio
278(4)
PART THREE Foreign Exchange Exposure and Management
Management of Economic Exposure
282(21)
Three Types of Exposure
283(1)
How to Measure Economic Exposure
284(4)
International Finance in Practice: U.S. Firms Feel the Pain of Peso's Plunge
286(2)
Operating Exposure: Definition
288(1)
Illustration of Operating Exposure
289(3)
Determinants of Operating Exposure
292(2)
Managing Operating Exposure
294(2)
Selecting Low-Cost Production Sites
294(1)
International Finance in Practice: The Strong Yen and Toyota's Choice
295(1)
Flexible Sourcing Policy
295(1)
Diversification of the Market
295(1)
R&D Efforts and Product Differentiation
296(1)
Financial Hedging
296(1)
Illustrated Mini Case: Exchange Risk Management at Merck
296(2)
Step 1: Exchange Forecasting
297(1)
Step 2: Assessing Strategic Plan Impact
297(1)
Step 3: Deciding Whether to Hedge
297(1)
Step 4: Selecting the Hedging Instruments
297(1)
Step 5: Constructing a Hedging Program
297(1)
Summary
298(3)
Mini Case: Economic Exposure of Albion Computers PLC
301(2)
Management of Transaction Exposure
303(27)
Forward Market Hedge
304(2)
Money Market Hedge
306(1)
Options Market Hedge
307(2)
Cross-Hedging Minor Currency Exposure
309(1)
Hedging Contingent Exposure
310(1)
Hedging Recurrent Exposure with Swap Contracts
311(1)
Hedging through Invoice Currency
312(1)
Hedging via Lead and Lag
313(1)
Exposure Netting
313(1)
International Finance in Practice: Riding Shifting Waves of Currency
314(1)
Should the Firm Hedge?
314(4)
International Finance in Practice: To Hedge or Not to Hedge
316(2)
What Risk Management Products Do Firms Use?
318(1)
Summary
319(3)
Mini Case: Chase Options, Inc.
322(8)
Management of Translation Exposure
330(22)
Translation Methods
330(3)
Current/Noncurrent Method
330(1)
Monetary/Nonmonetary Method
331(1)
Temporal Method
331(1)
Current Rate Method
331(2)
Financial Accounting Standards Board Statement 8
333(1)
Financial Accounting Standards Board Statement 52
333(4)
The Mechanics of the FASB 52 Translation Process
334(1)
Highly Inflationary Economies
334(3)
Illustrated Mini Case: Consolidation of Accounts according to FASB 52: The Centralia Corporation
337(4)
Management of Translation Exposure
341(3)
Translation Exposure versus Transaction Exposure
341(1)
Hedging Translation Exposure
342(1)
Balance Sheet Hedge
342(1)
Derivatives Hedge
343(1)
Translation Exposure versus Operating Exposure
344(1)
Empirical Analysis of the Change from FASB 8 to FASB 52
344(1)
Summary
344(2)
Mini Case: Sundance Sporting Goods, Inc.
346(6)
PART FOUR Financial Management of the Multinational Firm
Foreign Direct Investment and Cross-Border Acquisitions
352(28)
Global Trends in FDI
353(2)
Why Do Firms Invest Overseas?
355(7)
Trade Barriers
356(1)
Imperfect Labor Market
356(2)
Intangible Assets
358(1)
Vertical Integration
359(1)
Product Life Cycle
359(1)
International Finance in Practice: Linear Sequence in Manufacturing: Singer & Company
360(1)
Shareholder Diversification Services
361(1)
Cross-Border Mergers and Acquisitions
362(3)
Political Risk and FDI
365(10)
International Finance in Practice: DaimlerChrysler: The First Global Car Colossus
366(5)
International Finance in Practice: Stories Past and Present
371(4)
Summary
375(2)
Mini Case: Enron versus Bombay Politicians
377(3)
International Capital Structure and the Cost of Capital
380(26)
Cost of Capital
380(1)
Cost of Capital in Segmented versus Integrated Markets
381(2)
Does the Cost of Capital Differ among Countries?
383(4)
International Finance in Practice: The U.S. Welcomes the Alien Invasion
384(3)
Illustrated Mini Case: Novo Industri
387(2)
Cross-Border Listings of Stocks
389(3)
Capital Asset Pricing under Cross-Listings
392(2)
The Effect of Foreign Equity Ownership Restrictions
394(1)
Pricing-to-Market Phenomenon
395(1)
Illustrated Mini Case: Nestle
395(4)
Asset Pricing under Foreign Ownership Restrictions
397(2)
The Financial Structure of Subsidiaries
399(2)
Summary
401(4)
Appendix 16A: Pricing of Nontradable Assets: Numerical Simulations
405(1)
International Capital Budgeting
406(17)
Review of Domestic Capital Budgeting
407(1)
The Adjusted Present Value Model
408(2)
Capital Budgeting from the Parent Firm's Perspective
410(3)
Generality of the APV Model
412(1)
Estimating the Future Expected Exchange Rate
412(1)
Illustrated Mini Case: The Centralia Corporation
413(4)
Risk Adjustment in the Capital Budgeting Analysis
417(1)
Sensitivity Analysis
417(1)
Real Options
418(1)
Summary
419(2)
Mini Case: Dorchester, Ltd.
421(1)
Mini Case: Strik-It Rich Gold Mining Company
422(1)
Multinational Cash Management
423(23)
The Management of International Cash Balances
423(1)
Illustrated Mini Case: Teltrex's Cash Management System
424(7)
Netting Systems
424(2)
Centralized Cash Depository
426(3)
Bilateral Netting of Internal and External Net Cash Flows
429(1)
Reduction in Precautionary Cash Balances
429(2)
Cash Management Systems in Practice
431(1)
Transfer Pricing and Related Issues
432(1)
Illustrated Mini Case: Mintel Products Transfer Pricing Strategy
432(7)
Low versus High Markup Policy
432(1)
Exchange Restrictions
432(1)
Differential Income Tax Rates
433(1)
International Finance in Practice: Disciplining European Cash: Currency Volatility Spurs Proactive Cash Management
434(1)
Regulations Affecting Transfer Prices
434(2)
Import Duties
436(1)
Unbundling Fund Transfers
437(1)
Miscellaneous Factors
438(1)
Blocked Funds
439(3)
International Finance in Practice: Taking Shelter: As Congress Ponders New Tax Breaks, Firms Already Find Plenty
440(2)
Summary
442(2)
Mini Case 1: Efficient Funds Flow at Eastern Trading Company
444(1)
Mini Case 2: Eastern Trading Company's Optimal Transfer Pricing Strategy
444(1)
Mini Case 3: Eastern Trading Company's New MBA
444(2)
Exports and Imports
446(10)
A Typical Foreign Trade Transaction
447(2)
Forfaiting
449(1)
Government Assistance in Exporting
449(2)
The Export-Import Bank and Affiliated Organizations
450(1)
Countertrade
451(2)
Forms of Countertrade
451(1)
Some Generalizations about Countertrade
452(1)
Summary
453(1)
Mini Case: American Machine Tools, Inc.
454(2)
International Tax Environment
456(16)
The Objectives of Taxation
456(1)
Tax Neutrality
456(1)
Tax Equity
457(1)
Types of Taxation
457(4)
Income Tax
457(2)
Withholding Tax
459(1)
Value-Added Tax
459(2)
National Tax Environments
461(3)
Worldwide Taxation
461(1)
Territorial Taxation
461(1)
International Finance in Practice: The Rise and Rise of VAT
462(1)
Foreign Tax Credits
462(2)
Organizational Structures for Reducing Tax Liabilities
464(5)
Branch and Subsidiary Income
464(1)
Payments to and from Foreign Affiliates
465(1)
International Finance in Practice: As Dot-Coms Go Bust In U.S., Bermuda Hosts an Odd Little Boomlet
466(2)
Tax Havens
468(1)
Controlled Foreign Corporation
468(1)
Summary
469(1)
Mini Case: Sigma Corp.'s Location Decision
470(2)
Corporate Governance around the World
472(25)
Governance of the Public Corporation: Key Issues
472(2)
The Agency Problem
474(2)
Remedies for the Agency Problem
476(5)
Board of Directors
476(1)
International Finance in Practice: When Boards Are All in the Family
477(1)
Incentive Contracts
478(1)
Concentrated Ownership
478(1)
Debt
479(1)
Overseas Stock Listings
480(1)
Market for Corporate Control
480(1)
Law and Corporate Governance
481(3)
Consequences of Law
484(5)
Ownership and Control Pattern
484(4)
Private Benefits of Control
488(1)
Capital Markets and Valuation
488(1)
Corporate Governance Reform
489(3)
Objectives of Reform
489(1)
Political Dynamics
490(1)
The Cadbury Code of Best Practice
491(1)
Summary
492(5)
Glossary497(8)
Index505

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