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Part 1 Global Finance Environment 1 Chapter 1 The Globalization Process 3 The Globalization Process 4 Part I: The Global Financial Environment 6 Part II: Foreign Exchange Theory & Markets 6 Part III: Foreign Exchange Exposure Measurement & Management 7 Part IV: Financing the Global Firm 8 Part V: Foreign Investment Decisions 8 Global Finance Perspective 1.1 A Rose by any Other Name 8 Part VI: Managing Multinational Operations 10 What Is the Goal of Management? 11 Global Finance Perspective 1.2 What Drives Value? 16 Global Finance Perspective 1.3 What Destroys Value? 17 Summary of Learning Objectives 17 - Questions 18 - Internet Exercises 18 Mini-Case: Corporate Governance at Brasil Telecom 20 Chapter 2 History of Foreign Exchange Rates 22 Currency Terminology 23 History of the International Monetary System 24 Global Finance Perspective 2.1 The Names of Monies 25 Contemporary Currency Regimes 29 Emerging Markets & Regime Choices 32 The Birth of a European Currency: The Euro 36 Exchange Rate Regimes: What Lies Ahead? 38 Summary of Learning Objectives 39 - Questions 40 - Problems 41 - Internet Exercises 41 Mini-Case: Tsar Alexander III's Russian Gold Loan 42 Chapter 3 The Balance of Payments 44 Typical BOP Transactions 45 Fundamentals of Balance of Payments Accounting 47 The Accounts of the Balance of Payments 48 The Balance of Payments in Total 54 Capital Mobility 56 Summary of Learning Objectives 58 - Questions 59 - Problems 60 - Internet Exercises 62 Mini-Case: Turkey's Kriz (A): Deteriorating Balance of Payments 62 Part 2 Foreign Exchange Theory and Markets 65 Chapter 4 International Parity Conditions 67 Prices and Exchange Rates 68 Interest Rates and Exchange Rates 74 Forward Rate as an Unbiased Predictor of the Future Spot Rate 82 Prices, Interest Rates, and Exchange Rates in Equilibrium 84-85 84 Summary of Learning Objectives 85 - Questions 86 - Problems 86 - Internet Exercises 89 Mini-Case: Russian Purchasing Power & Western Automakers 89 Chapter 5 Foreign Exchange Rate Determination 92 The Balance of Payments (BOP) Approach 94 The Asset Market Approach to Forecasting 97 Technical Analysis 98 Forecasting in Practice 98 Disequilibrium: Exchange Rates in Emerging Markets 101 The Asian Crisis 102 The Russian Crisis of 1998 105 The Brazilian Crisis of 1999 107 Summary of Learning Objectives 110 - Questions 110 - Problems 111 - Internet Exercises 112 Mini-Case: Turkey's Kriz (B): Uncovered Interest Arbitrage 113 Chapter 6 The Foreign Exchange Market 116 Geographical Extent of the Foreign Exchange Market 117 Functions of the Foreign Exchange Market 118 Market Participants 118 Global Finance Perspective 6.1 Iraqi Dealing for Dinars 120 Global Finance Perspective 6.2 Beware of Foreign Currency Trading Frauds 121 Transactions in the Interbank Market 121 Size of the Market 123 Foreign Exchange Rates and Quotations 124 Summary of Learning Objectives 132 - Questions 133 - Problems 134 - Internet Exercises 135 Mini-Case: Willem Vandewater N.V. and the Euro 136 Chapter 7 Foreign Currency Derivatives 138 Foreign Currency Features 139 Currency Options 142 Foreign Currency Speculation 145 Global Finance Perspective 7.1 Rogue Currency Trader at Allied Irish Bank 146 Option Pricing and Valuation 153 Produce in Practice 157 Global Finance Perspective 7.2 A Selected List of Derivative and Managerial Disasters 158 Summary of Learning Objectives 158 - Questions 159 - Problems 160 - Internet Exercises 162 Mini-Case: Rogue Trader, Nicholas Leeson 162 Part 3 Foreign Exchange Exposure 167 Chapter 8 Transaction Exposure 169 Types of Foreign Exchange Exposure 170 Why Hedge? 171 Global Finance Perspective 8.1 Amazon.com's Quest for Profits: the Role of Currency Gains/Losses 172 Measure of Transaction Exposure 174 Global Finance Perspective 8.2 Examples of Corporate Objectives of Hedging 174 Trident's Transaction Exposure 177 Management of an Account Payable 185 Risk Management in Practice 187 Global Finance Perspective 8.3 Manipulation of Currency Gains and Losses 188 Summary of Learning Objectives 190 - Questions 191 - Problems 191 - Internet Exercises 193 Mini-Case: Lufthansa's Purchase of Boeing 737s 194 Chapter 9 Operating Exposure 196 Attributes of Operating Exposure 197 Global Finance Perspective 9.1 Volvo Car 199 Illustrating Operating Exposure: Trident 199 Strategic Management of Operating Exposure 204 Global Finance Perspective 9.2 Goodyear's Response to the Mexican Peso's Devaluation 205 Proactive Management of Operating Exposure 206 Contractual Approaches: Hedging the Unhedgeable 211 Summary of Learning Objectives 212 - Questions 212 - Problems 213 - Internet Exercises 215 Mini-Case: Toyota's European Operating Exposure 216 Chapter 10 Translation Exposure 218 Overview of Translation 219 Translation Methods 220 Translation Example: Trident Europe 225 Comparing Translation Exposure with Operating Exposure 230 Managing Translation Exposure 231 Summary of Learning Objectives 234 - Questions 234 - Problems 235 - Internet Exercises 237 Mini-Case: Hedging the Euro Away 237 Part 4 Financing the Global Firm 239 Chapter 11 Global Cost and Availability of Capital 241 Weighted Average Cost of Capital 243 The Demand for Foreign Securities: The Role of International Portfolio Investors 247 The Link Between Cost and Availability of Capital 248 Illustrative Case: Novo Industri: A/S (Novo) 251 Globalization of Securities Markets 256 The Cost of Capital for MNEs Compared to Domestic Firms 257 Solving a Riddle: Is the Weighted Average Cost of Capital for MNEs Really Higher than for Their Domestic Counterparts? 258 Summary of Learning Objectives 260 - Questions 261 - Problems 262 - Internet Exercises 263 Mini-Case: Bang & Olufsen & Philips N.V. 264 Chapter 12 Sourcing Equity Globally 265 Designing a Strategy to Source Equity Globally 266 Foreign Equity Listing and Issuance 269 Improving Liquidity 270 Effect of Cross-Listing on Share Price 272 Other Motives for Cross-Listing 273 Barriers to Cross-Listing and Selling Equity Abroad 274 Alternative Instruments to Source Equity in Global Markets 275 Global Finance Perspective 12.1 Private Equity in Argentina and the Argentine Crisis 279 Summary of Learning Objectives 279 - Questions 280 - Internet Exercises 280 Mini-Case: Deutsche Bank's Global Registered Shares 281 Chapter 13 Financial Structure and International Debt 283 Optimal Financial Structure 284 Optimal Financial Structure and the MNE 285 Financial Structure of Foreign Subsidiaries 288 The Eurocurrency Markets 292 International Debt Markets 294 Global Finance Perspective 13.1 Pricing and Structure of a Syndicated Eurocredit 295 Project Financing 300 Summary of Learning Objectives 301 - Questions 302 - Problems 304 - Internet Exercises 305 Mini-Case: The Financing of Petrozuata 306 Chapter 14 Interest Rate and Currency Swaps 308 Defining Interest Rate Risk 309 Management of Interest Rate Risk 310 Trident Corporation: Swapping to Fixed Rates 317 Currency Swaps 318 Global Finance Perspective 14.1 Caveat Emptor, Procter & Gamble's Swaps 318 Trident Corporation: Swapping Floating Dollars into Fixed-Rate Swiss Francs 319 Counterparty Risk 321 Global Finance Perspective 14.2 Ecuadorian Debt-for-Development 322 Illustrative Case: A Three-Way Back-to-Back Cross-Currency Swap 323 Summary of Learning Objectives 324 - Questions 324 - Problems 325 - Internet Exercises 327 Mini-Case: McDonald's Corporation's British Pound Exposure 327 Part 5 Foreign Investment Decisions 329 Chapter 15 Foreign Direct Investment Theory and Strategy 331 The Theory of Comparative Advantage 332 Market Imperfections: A Rationale for the Existence of the Multinational Firm 333 Sustaining and Transferring Competitive Advantage 334 The OLI Paradigm and Internalization 337 Where to Invest? 339 How to Invest Abroad: Modes of Foreign Involvement 341 Summary of Learning Objectives 345 - Questions 346 - Problems 347 - Internet Exercises 347 Mini-Case: The Theory of Comparative Advantage 348 Mini-Case: Benecol's Global Licensing Agreement 350 Chapter 16 Multinational Capital Budgeting 351 Complexities of Budgeting for a Foreign Project 352 Project Versus Parent Valuation 353 Illustrative Case: Cemex Enters Indonesia 354 Real Option Analysis 366 Summary of Learning Objectives 366 - Questions 367 - Problems 368 - Internet Exercises 370 Mini-Case: Trident's Chinese Market Entry; An Application of Real Option Analysis 371 Chapter 17 Adjusting for Risk in Foreign Investment 373 Defining Risk 374 Defining, Measuring, and Managing Foreign Investment Risks 375 Business Risks 377 Foreign Exchange Risks 381 Governance Risk Management 381 Country-Specific Risks 384 Transfer Risk 384 Cultural Differences 388 Global-Specific Risks 392 Summary of Learning Objectives 394 - Questions 395 - Problems 396 - Internet Exercises 397 Mini-Case: Motorola & TelSim of Turkey 398 Chapter 18 Cross-Border Mergers, Acquisitions, and Valuation 400 Cross-Border Mergers and Acquisitions 401 Cross-Border Acquisition Process 405 Global Finance Perspective 18.1 Cash or Shares in Payment 408 Global Finance Perspective 18.2 Clashing Corporate Cultures at British Petroleum and Amoco 409 Corporate Governance and Shareholder Rights 410 Global Finance Perspective 18.3 Vodaphone's Hostile Acquisition of Mannesmann 411 Cross-Border Valuation 414 Summary of Learning Objectives 426 - Questions 427 - Problems 428 - Internet Exercises 429 Mini-Case: Cemex of Mexico Bids for Semen Gresik of Indonesia 430 Chapter 19 International Portfolio Theory and Diversification 433 International Diversification and Risk 434 Internationalizing the Domestic Portfolio 437 National Equity Market Performance 442 Global Finance Perspective 19.1 Should Fund Managers Hedge Currency Risk? 446 The International Capital Asset Pricing Model 446 Global Finance Perspective 19.2 In Search of the Belgian Dentist 449 Summary of Learning Objectives 449 - Questions 451 - Problems 452 - Internet Exercises 452 Mini-Case: Private Equity in Latin America; The Soto Group 453 Part 6 Managing Multinational Operations 455 Chapter 20 Multinational Tax Management 457 Tax Principles 458 U.S. Taxation of Foreign Source Income 465 Summary of Learning Objectives 474 - Questions 474 - Problems 476 - Internet Exercises 479 Mini-Case: Romanian Communications and Cyprus Offshore 479 Chapter 21 Repositioning Funds 481 Trident's Repositioning Decisions 482 Constraints on Positioning Funds 483 Conduits for Moving Funds 484 Transfer Pricing 485 License Fees, Royalty Fees, and Shared Services 489 Global Finance Perspective 21.1 Transfer Prices and the Japanese Tax Authorities 490 Global Finance Perspective 21.2 Over- and Underinvoicing 492 International Dividend Remittances 492 Leads and Lags: Retiming the Transfer of Funds 494 Reinvoicing Centers 495 Summary of Learning Objectives 497 - Questions 498 - Problems 499 - Internet Exercises 501 Mini-Case: Ford Ranger Asia Pacific 502 Chapter 22 Working Capital Management in the MNE 504 Working Capital Management 505 International Cash Management 513 Financing Working Capital 521 Summary of Learning Objectives 526 - Questions 527 - Problems 528 - Internet Exercises 530 Mini-Case: Honeywell and Pakistan International Airways 531 Chapter 23 International Trade Finance 534 Elements of an Import/Export Transaction 536 Key Documents 539 Global Finance Perspective 23.1 Trade Finance Solutions Grow With Trade 540 Letter of Credit(L/C) 540 Draft 543 Bill of Lading (B/L) 545 Example: Documentation in a Typical Trade Transaction 546 Government Programs to Help Finance Exports 548 Global Finance Perspective 23.2 The Letter of Credit Goes Online 549 Summary of Learning Objectives 550 - Questions 551 - Problems 552 - Internet Exercises 553 Mini-Case: Crosswell International's Precious Ultra-Thin Diapers 553 Glossary G-1 Index I-1
Library of Congress Subject Headings for this publication:
International business enterprises -- Finance.
International finance.
Foreign exchange.