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International Financial Management

ISBN: 9780256160468 | 0256160465
Format: Hardcover
Publisher: McGraw-Hill Higher Education
Pub. Date: 7/1/1997

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SummaryTable of Contents
"International Financial Management" combines the fundamental concepts of international finance with solid practical applications. This combination has made it the book of choice at a variety of institutions, including top business schools such as Wharton, Stanford, Northwestern, and INSEAD. Neither superficial nor overly theoretical, Eun and Resnick's approach offers a conceptually solid, yet still relevant, treatment of international financial topics that puts students on the right track to becoming effective global financial managers..
PART ONE Foundations of International Financial Management2(134)
Chapter 1 GLOBALIZATION AND THE MULTINATIONAL FIRM
2(29)
What's Special about International Finance?
... MORE5(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 Institutions136(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 Management312(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 Firm388(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)
GLOSSARY524(8)
INDEX532

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