Preface
Acknowledgments
PARTI:INTRODUCTION1
CHAPTER1:IntroductiontoInternationalBuslnessFinance3
IntroductiontotheInternationalFinanceFunction3
Thegainsfromtradeingoodsandservices3
Reasonstostudyglobalfinance7
Themostfundamentalandpowerfulconcepts9
Theenvironmentofmultinationalbusiness10
Theob ectiveofthisbook11
Culturalvariablesofmternationalbusinss13
TheEnvironmentofInternationalFinance15
Growthofglobalfinancialfirms15
Foreignexchangemarkets17
ThechieffinancialofficeroleanMNC21
MANAGEMENTAPPLICATIONNO.1:GERHARDLIENER,CHIEFFINANCIALOFFICER,DAIMLER-BENZ20
MANAGEMENTAPPLICATIONNO.2.JEROMEB.YORK,CHIEFFINANCIALOFFICER,IBM21
MANAGEMENTAPPLICATIONNO.3:STEVEKEY,CHIEFFINANCIALOFFICER,CONAGRA22
AdditionalReadings23
DiscussionQuestions23
Problems23
PARTII:THEGLOBALBUSINESSFINANCEENVIRONMENT25
CHAPTER2:TheInternationalMonetarySystemandtheBalanceofPayments27
Introduction27
InternationalMonetarySystems28
Thegoldstandard28
Thegoldexchangestandard29
TheBrettonWoodssystem29
Thefloatingexchangeratesystem32
Summaryofalternativeexchangeratesystems51
TheBalanceofPayments51
Economicimpactsonthebalanceofpayments53
Somebalanceofpaymentsconcepts54
U.S.governmentbalanceofpaymentspolicy--historicallessons59
SummaryandConclusions62
AdditionalReadings63
DiscussionQuestions63
Problems64
CHAPTER3:TheForeignExchangeMarket,ForecastingExchangeRates,andParity
Relationships66
Introduction66
ForeignExchangeMarkets67
Theroleofcommercialbanks67
MANAGEMENTAPPLICATIONNO.4:EXAMPLEOFASPOTTRANSACTION71
MANAGEMENTAPPLICATIONNO.5:AFORWARDCONTRACT79
Foreignexchangeratedetermination81
MANAGEMENTAPPLICATIONNO.6:FOREIGNEXCHANGETRADERS''QUOTATIONS82
Foreignexchangemarketregulations85
Forecastingforeignexchangerates85
Centralbankintervention87
TheoriesofForeignExchangeRateDetermination89
Purchasingpowerparity89
TheFishereffect92
TheinternationalFishereffect92
Interestrateparity93
Theforward-spotrelationship97
MANAGEMENTAPPLICATIONNo.7:INTERESTRATEPARITYINPRACTICE97
Summaryoftheequilibriumframework98
SummaryandConclusions99
MANAGEMENTAPPLICATIONNO.8:INTERESTRATEPARITYINPRACTICE100
AdditionalReadings101
DiscussionQuestions101
Problems101
CHAPTER4:TheManagementofForeignExchangeRateExposure104
Introduction104
ForeignExchangeExposures104
Translationexposure105
Transactionexposure106
Economicexposures107
Summary107
ForeignExchangeManagementIssues108
OrganizingforForeignExchangeManagement109
Theissueofcentralizationvs.decentralization109
Theexposuremanagementfunction110
Organizingtheexposuremanagementfunction116
SummaryandConclusions118
AdditionalReadings119
DiscussionQuestions119
Problems120
CHAPTER5:PoliticalRiskinGlobalFinancialManagement121
Introduction121
TypesofPoliticalRisk122
Violenceorwar122
Currencyrestrictions122
Contractinterference123
Expropriation125
EvaluationofPoliticalRisk126
Analysisandmeasurementofpoliticalrisk126
Politicalriskratingservices126
ManagementofPoliticalRisk135
Avoidance135
Reductionorshiftingofrisk135
Postcommitmentpractices135
Summary136
BanksandPoliticalRiskManagement136
PoliticalRiskInsurance137
Governmentsponsoredprograms137
Privateproperty-centeredinsurance141
Implications142
PoliticalRiskinTransitionEconomies142
SummaryandConclusions144
AdditionalReadings144
DiscussionQuestions145
Problems145
PARTIII:PLANNINGFORFOREIGNINVESTMENTANDOPERATIONS147
CHAPTER6:ForeignDirectInvestment149
Introduction149
Benefitsofforeigndirectinvestment151
FDIinLDCs152
RestrictionsonFDIinLDCs153
BenefitstoindustrializednationsfromFDI154
FeasibilityofForeignVentures155
Politics155
Currency155
Taxes156
Generalconditions156
TheForeignInvestmentDecisionProcess157
Thedecisiontolookabroad158
Theinvestigationprocess158
Thedecisiontoinvest158
Reviewsandnegotiations158
Changesthroughrepetition158
ApproachestoForeignInvestmentAnalysis159
Go/nogoapproach159
Premiumforriskapproach159
Rangeofestimatesapproach160
Probabilitytheoryapproach160
LicensingasanAlternativetoFDI161
Risks161
ImpactofFDIonMNC''sCompetitiveAdvantage162
SummaryandConclusions162
Appendix:TheoriesofForeignInvestment163
Factormarketimperfections163
TheAdvantageofInformation164
ASynthesisoftlypotheses164
Marketequilibriumhypothesis164
Government-imposeddistortions164
Marketstructureimperfections164
Marketfailureimperfections164
Internalization165
Eclecticism166
TheJapaneseSchool167
TheTheoryofInternationalBanking167
Summary167
AdditionalReadings168
DiscussionQuestions169
Problems169
CHAPTER7:Long-TermCapitalManagement170
Introduction170
CapitalBudgetingLiterature171
Generalliterature171
Internationalcapitalbudgetingliterature171
TheInternationalCapitalBudgetingFunction174
Capitalbudgetingmethods175
MANAGEMENTAPPLICATIONNO.9:ACOMPARATIVECAPITALBUDGETINGPROBLEM178
Culturalproblems179
Problemswithdiscountedcashflowmodels179
TheCostofCapitalandFinancialStructure182
Factorswhichaffectanaffiliate''sfinancialstructure183
Optimal.financialstructure184
Costofcapitalissues184
SummaryandConclusions186
AdditionalReadings187
DiscussionQuestions187
Problems188
CHAPTER8:PlanningandOrganizationoftheInternationalFinanceFunction190
Introduction190
FinancialPlanningandPolicy193
Domesticvs.internationalplanning193
Financialstrategy193
AssignmentofFunctionalResponsibilities195
Theinternationaldivisionstructure196
Thegeographicstructure197
Theproductstructure198
Theglobalmatrixstructure198
Outsourcingfinancialfunctions200
TheInternationalFinanceFunction200
Externalfinancingpatterns202
FinancialstaffrelationshipsinMNCs203
MANAGEMENTAPPLICATIONNO.10:INTERNATIONALFINANCINGARRANGEMENTS205
MANAGEMENTAPPLICATIONNO.11:TECHNIQUEFORCONTROLLINGINTERNATIONALFLOAT205
MANAGEMENTAPPLICATIONNO.12:FINANCIALPLANNINGANDTAXES206
Planningforearningsremittance206
SummaryandConclusions207
AdditionalReadings208
DiscussionQuestions208
Problems208
PARTIV:THEROLEOFBANKSINGLOBALFINANCE209
CHAPTER9:TheEnvironmentandRoleofInternationalBanking211
Introduction211
Evolutionofinternationalbankingactivities212
TheInternationalBankingEnvironment212
Universalbanks212
Organizationalstructureforinternationaloperations213
BankRegulation217
Recentbankingproblems219
Bankrisks220
Wholesalevs.retailbanking225
Non-bankbanking226
TheRoleofBanksinEconomicandInstitutionalDevelopment226
Analysisofinternationalbankingactivities227
SummaryandConclusions228
AdditionalReadings229
DiscussionQuestions229
Problems229
CHAPTER10:MajorFunctionsofInternationalBanks230
Introduction230
Financinginternationaltrade231
Nontraditionaltradefinance233
MANAGEMENTAPPLICATIONNO.13:FORFAITINGINTHECZECHREPUBLIC237
Eurocurrencyoperations241
Foreignexchangeoperations24.5
Sovereignlending249
MANAGEMENTAPPLICATIONNO.14:HOWMR.PREBLEGOTAPIECEOFTHEACTION257
Internationalinvestmentbanking259
Globalcustodyoperationsofbanks261
MANAGEMENTAPPLICATIONNO.15:DIARYOFANINVESTMENTBANKER262
SummaryandConclusions263
AdditionalReadings264
DiscussionQuestions264
Problems264
PARTV:INVENTORYOFINTERNATIONALFINANCIALRESOURCES267
CHAPTER11:Non-BankFinancialInstitutionsinGlobalFinance269
Introduction269
PublicInternationalFinancialInstitutions270
Publicglobalfinancialinstitutions270
Regionalpublicfinancialinstitutions274
Nationalpublicfinancialinstitutions279
Conclusions281
PrivateInternationalFinancialInstitutions281
Introduction281
Globalprivatefinancialinstitutions281
Regionalprivatefinancialinstitutions282
Nationalprivatefinancialinstitutions282
SummaryandConclusions285
AdditionalReadings285
DiscussionQuestions286
Problems286
CHAPTER12:InternationalFinancialMarkets287
Introduction287
EurocurrencyMarkets288
Eurocurrencycenters288
InternationalDebtMarkets---Long-term288
Riskindebtmarkets290
Globalbonds291
Foreignbonds293
Effrobonds293
HowforeignbondsandEurobondsareissued296
Specialtypesofbonds302
Short-andMedium-termDebtMarkets303
Euro-commercialpaperandEuro-medium-termnotes303
FloatingrateEuro-notes303
Internationalrepomarket303
Tri-partyrepos304
InternationalEquities305
Marketinformationaboutforeignstocks309
Riskintheequitymarkets309
MANAGEMENTAPPLICATIONNO.16:ANEMERGINGSTOCKMARKET311
Transactionsdirectlyontheforeignmarket314
ADRs,Americanshares,andGDRs314
Countryfunds316
SummaryandConclusions317
AdditionalReadings318
DiscussionQuestions318
Problems318
CHAPTER13:InternationalDerivativesExchange-Traded320
Introduction321
Usersofderivatives323
Risksofderivatives324
CurrencyFuturesandOptions329
Foreigncurrencyfutures329
MANAGEMENTAPPLICATIONNO.17:BASISRISK339
Foreigncurrencyoptions339
MANAGEMENTAPPLICATIONNO.18:NICKLEESONANDBARINGSPLC340
MANAGEMENTAPPLICATIONNO.19:ACURRENCYOPTIONSSCENARIO349
MANAGEMENTAPPLICATIONNO.20:BUYINGAJAGUARANDCURRENCYOPTIONS349
MANAGEMENTAPPLICATIONNO.21:FOREIGNCURRENCYCALLOPTIONS:ANEXAMPLE350
InterestRateFuturesandOptions357
Hedgingwithinterestratefutures358
Optionsoninterestratefutures359
SummaryandConclusions359
Appendix1:OptionsPricingConcepts360
Appendix2:PricingOptionswithSimultaneousEquations361
AdditionalReadings362
DiscussionQuestions362
Problems363
CHAPTER14:InternationalNonexchangeTradedDerivatives365
Introduction365
CurrencyandInterestRateSwaps366
Currencyswaps366
MANAGEMENTAPPLICATIONNO.22:CURRENCYSWAPEXAMPLE367
Interestrateswaps368
MANAGEMENTAPPLICATIONNO.23:INTERESTRATESWAPEXAMPLE371
MANAGEMENTAPPLICATIONNo.24:ASALLIEMAECURRENCYSWAP373
InterbankCurrencyFuturesandOptions373
Marketefficiencytestsof0TCoptions374
Swaptions375
ExoticDerivatives375
Whatareexoticderivatives375
MANAGEMENTAPPLICATIONNO.25:EUROYENBONDWITHWARRANTS379
Derivativesforemergingmarkets379
Regulationofderivatives379
SummaryandConclusions382
AppendixNo.1:CorrelationProducts:TheDiffSwap383
AppendixNo.2:EffectofKnockoutOptionsontheCurrencyMarket385
AdditionalReadings386
DiscussionQuestions387
Problems387
PARTVI:SHORT-TERMCAPITALMANAGEMENTOFINTERNATIONAL
OPERATIONS389
CHAPTER15:InternationalCashManagement391
Introduction391
internationalCashManagement39J
Theinternationalcashmanagementenvironment393
Objectivesofinternationalcashmanagement396
Internationalcashmanagementrequirements396
Keyquestionsforinternatiana!cashmanagement397
InternationalCashReceiptsSystem397
Principlesofinternationalcashreceipts397
Floattime400
Clearingandsettlement401
InternationalCashDisbursementSystem401
Objectivesofthecashdisbursementsystem401
TheInternationalCashManager402
MANAGEMENTAPPLICATIONNO.26:CASHFLOWMANAGEMENTINGERMANY403
PrinciplesforMNCMoneyManagers404
Selectedexamplesofinternationalcashmanagement404
Selectedgeneralizationsaboutworkingcapitalmanagement405
Short-termfinancingprinciples408
lntracompanyfinancing408
Examplesofinternationalliquiditymanagement411
OrganizingForeignCurrencyAccounts412
Benefitsfromanoptimalorganization412
Organizationaldesign413
Decentralizedforeigncurrencyaccounts413
Centralizedforeigncurrencyaccounts413
Hybridsystem413
SummaryandConclusions414
AdditionalReadings414
DiscussionQuestions415
Problems415
CHAPTER16:Accounting,Control,andAuditingforInternationalOperations416
Introduction417
LackofUniformInternationalGAAP418
MANAGEMENTAPPLICATIONNO,27:DAIMLERBENZLISTSONTHENEWYORKSTOCKEXCHANGE420
AdvantagesofuniversalinternationalGAAP419
BarrierstouniversalinternationalGAAP419
TheInternationalAccountingStandardsCommittee421
MajorareasinwhichIASareneeded423
ConsolidationofForeignOperations424
Ownershipofvotingstockinaforeigncorporation424
AccountingforInternationalOperations424
Pricelevelchanges424
Translationofforeignaccounts425
MANAGEMENTAPPLICATIONNo.28:ROUSECOMPANY430
MANAGEMENTAPPLICATIONNO.29:ITl''CORPORATION436
ReportingWorldwideOperations435
Control,Evaluation,andAuditing437
Controloftheinternationalfinancefunction438
Evaluationofforeignsubsidiaryperformance441
MANAGEMENTAPPLICATIONNO.30:RETURNONINVESTMENT442
Auditing444
SummaryandConclusions448
AdditionalReadings448
DiscussionQuestions449
Problems449
CHAPTER17:TaxationofInternationalOperations453
Introduction453
OverviewofInternationalTaxation454
Howmultinationalbusinessistaxed454
Nationaltaxsystems454
WorldwideTaxIssues456
Aggregatelevel457
Burdenonthefirm457
Taxationofcapitalgains457
Typeoftax457
Progressivenessoftheincometax458
Dualityofcorporatetaxation458
Purpose458
Observance458
Basisforjurisdiction458
Jurisdictionclaimed458
Inrecognizingcosts458
Inthetimingoftaxes458
Taxsparing459
Taxneutrality459
Recognitionoftaxexemptions459
Flexibility459
Paxincentives459
Jurisdictionsclaimingtaxes459
Contractor/companyclauses459
Methodsfortaxingforeignsourceincome460
U.S.IncomeTaxTreaties461
RemittanceofIncomebyU.S.-ownedForeignCorporations461
U.S.taxationofforeignsourcebusinessincome461
Theforeigntaxcredit462
Subsidiaryvs.BranchOperations467
OtherU.S.TaxCodeChanges469
Westernhemispheretradecorporation469
Domesticinternationalsalescorporation469
Foreignsalescorporation469
Possessionscorporation470
PlanningandOrganizingMNCOperationstoMinimizeTaxes471
MANAGEMENTAPPLICATIONNO.31:HITACHICORPORATIONOFJAPANANDOTHERS471
Companiesbeware473
Anexampleofrestructuring473
OtherTaxissuesFacingMNCs474
Taxhavenoperations474
Transferpricingandsection482476
MANAGEMENTAPPLICATIONNO.32:ATRANSFERPRICINGEXAMPLE479
Unitarytaxation480
Directvs.IndirectTaxation482
TaxationoftheU.S.ExpatriateManager482
ImpactofTaxationonMNCDecisionsandPolicies482
MNCmanagementpoliciestowardtaxation483
MANAGEMENTAPPLICATIONNO.33:TAXMINIMIZATIONSTRATEGIESFORTHEMNC484
SummaryandConclusions484
AdditionalReadings485
DiscussionQuestions485
Problems486
CHAPTER18:PaymentSystems,Custody,andSettlementofCross-BorderTransactions
inGlobalFinance488
Introduction489
Globalizationoffinancialmarkets490
FinancialMarketRisks491
Creditrisk491
Replacementcostrisk492
Principalrisk492
Liquidityrisk492
Operationalrisk493
Systemicrisk493
PaymentSystems:AnOverview494
Selectedpaymentsystems494
Roleofcentralbanks495
Banks''RoleinPaymentSystems496
Nettingarrangements496
Securitiessettlementsystems500
GlobalCustodiansandClearingHouses502
Sourcesofinformation502
Globalcustodians503
Clearinghousearrangements505
Regulationofglobalcustodians513
ClearingandSettlementinDerivativesMarkets514
Themajorissue515
SummaryandConclusions516
AdditionalReadings518
DiscussionQuestions518
Problems519
GlossaryofTerms521
Index532
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