.

0 (hodnocen0 x )

BK

Second edition

St. Paul ; New York ; Los Angeles ; San Francisco : West Publishing Company, [1989]

xxii, 630 stran : ilustrace ; 26 cm

ISBN 0-314-43029-6 (vázáno)

Terminologický slovník

Obsahuje bibliografie a rejstřík

001458416

CONTENTS // PART 1 // CHAPTER 1 // CHAPTER 2 // Preface xix // THE INTERNATIONAL FINANCIAL ENVIRONMENT 1 // Multinational Financial Management: An Overview // Objective of the MNC 3 // Conflicts Against the MNC Objective 3 Constraints Interfering with the MNC Objective 4 Motivation for International Business 5 Theory of Comparative Advantage 5 imperfect Markets Theory 5 Product Cycle Theory 7 Growth in International Business 7 International Trade 8 Direct Foreign Investment ? Impact of Foreign Opportunities on Firm Size 11 Optimal Degree of Foreign Business 15 Risks of International Business 16 Summary 16 // Organization of the Text 17 Questions 17 Project 18 References 18 // International Flow of Funds 20 // International Financial Markets 20 Foreign Exchange Market 20 Eurocurrency Market 21 Eurocredit Market 23 Eurobond Market 24 International Stock Markets 24 Flow MNCs Use International Financial Markets 24 International Fund Flows and Balance of (Payments 25 Current Account 26 Capital Account 28 // CONTENTS // vii // Appendix 2A: Appendix 2B: Appendix 2C: // CHAPTER 3 // Factors Affecting the Current Account Balance 28 Impact of Inflation 28 Impact of National Income 28 Impact of Exchange Rates 28 Impact of Government Restrictions 32 Concluding Comment on Current Account Balance 36 Correcting a Balance-of-Trade Deficit 36 Impact of Trade on the International Debt Crisis 36 Factors Affecting the Capital Account Balance 37 The United States as a Net-Debtor Nation 38 Agencies

that Oversee International Flows of Funds 38 International Monetary Fund 38 World Bank 40 // International Financial Corporation 41 International Development Association 42 Bank of International Settlements 42 Regional Development Agencies 42 Summary 42 Questions 42 Project 44 References 44 // The Balance of Payments 46 // U.S. Balance of Payments Account 56 // Fundamentals of Regression Analysis 59 // Foreign Exchange Markets 63 // Need for a Foreign Exchange Market 63 Bank Involvement in Foreign Exchange 64 Bid/Ask Spread of Banks 65 Foreign Exchange Trading at Banks 66 Exchange Rate Risk at Banks 67 Forward Contracts 69 // How MNCs Use Forward Contracts 69 Premium or Discount on the Forward Rate 70 How a Forward Contract Can Backfire 71 Tailor-Made for MNCs 71 Interpreting Foreign Exchange Quotations 72 Cross Exchange Rates 74 // Computing the Percentage Change in Exchange Rates Over Time 75 Exchange Rate Equilibrium 76 Demand for a Currency 76 Supply of a Currency for Sale 77 Factors that Influence Exchange Rate Movements 78 Relative Inflation Rates 78 Relative Interest Rates 80 Relative Income Levels 82 Governmental Controls 83 // vili // CONTENTS // Appendix 3: CHAPTER 4 // PART 2 // CHAPTER 5 // Expectations 83 Interaction of Factors 84 // Using an Index to Review Currency Movements 86 Historical Review of Exchange Rate Movements 86 Summary 87 Questions/Problems 89 Projects 91 // References 92 . // Foreign Exchange Trading in the Real World 94 // Currency Futures and Options

Markets 106 // Currency Futures Market 106 // Currency Futures Contracts Versus Forward Contracts 106 Interpreting Currency Futures Contracts Information 108 Closing Out a Futures Position 109 Selling Currency Futures Contracts 109 Corporate Use of Currency Futures 109 Speculation with Currency Futures 110 Margin Requirements on Currency Futures ill Transaction Costs of Currency Futures m Currency Options Market m Currency Call Options 112 // Interpreting Currency Call Options Information 112 Factors Affecting Call Option Premiums 113 Corporate Use of Currency Call Options 114 Speculating with Currency Call Options 115 Break-Even Point on Currency Call Options 116 Net Profit from Speculating on Currency Call Options 117 Return and Risk of Currency Call Options 117 Currency Put Options 118 // Factors Affecting Currency Put Option Premiums 118 Corporate Use of Currency Put Options 118 Speculating with Currency Put Options 119 Net Profit from Speculating on Currency Put Options 120 Developing Contingency Graphs for Options 121 Comparison of American and European Currency Options 123 Efficiency of Currency Futures and Options Markets 124 Summary 125 Questions/Problems 125 Projects 129 References 129 // EXCHANGE RATE BEHAVIOR 131 // Government Influence on Exchange Rates 132 // Exchange Rate Systems 132 // Fixed Exchange Rate System 132 // CONTENTS // ix // Freely Floating Exchange Rate System 133 Managed-Float Exchange Rate System 135 Pegged Exchange Rate System 136 Classification

cf Exchange Rate Arrangements 139 Government Intervention in the Foreign Exchange Market 139 Reasons for Intervention in the Foreign Exchange Market 139 Direct Intervention 142 // Indirect Intervention through Government Policy 144 Indirect Intervention through Government Barriers 145 A Proposal for Exchange Rate Target Zones 145 Impact of a Government Deficit an Exchange Rates 147 ¦ // Exchange Rate Adjustment as a Government Policy Tool 147 Influence of a Weak Home Currency on the Economy 148 Influence of a Strong Home Currency on the Economy 148 Influence of Exchange Rates on Government Policy 151 Impact of the Dollar’s Value on Financial Market Trading 151 Impact of the Dollar’s Expected Value on U.S. Bond Prices 151 Impact of the Dollar’s Value on Stock Prices 151 Summary 152 Questions 153 Project 155 References 155 // CHAPTER 6 // International Arbitrage and Interest Rate Parity 157 // International Arbitrage 157 Locational Arbitrage 158 Triangular Arbitrage 159 Covered Interest Arbitrage 162 Interest Rate Parity 165 // Graphic Analysis of Interest Rate Parity I68 How to Test Whether Interest Rate Parity Exists 170 Interpretation of Interest Rate Parity 170 Does Interest Rate Parity Hold? 171 // Other Considerations When Assessing Interest Rate Parity 171 Correlation between Spot and Forward Rate Movements 172 Summary 174 Questions/Problems 174 Projects 176 References 177 // CHAPTER 7 // Relationships between Inflation, Interest Rates, and Exchange Rates 178 // Purchasing

Power Parity (PPPj 178 // Rationale behind Purchasing Power Parity 181 Using Purchasing Power Parity to Assess Future Currency Movements 182 // Graphic Analysis of Purchasing Power Parity 182 Testing the Validity of Purchasing Power Parity Theory 184 // PART 3 // CHAPTER 8 // Appendix 8: CHAPTER 9 // CONTENTS // Monitoring "Rear Exchange Rates to Test Purchasing Power Parity Theory 186 // Why Purchasing Power Parity Does Not Consistently Hold 188 Limitation in Testing Whether Purchasing Power Parity Holds 188 International Fisher Effect 190 // Graphic Analysis of the International Fisher Effect 193 Does the International Fisher Effect Hold? 197 Why the International Fisher Effect Does Not Always Hold - 198 Comparison of IRR PPR and IFE Theories 198 Summary 199 Questions 200 Projects 201 References 202 // EXCHANGE RATE RISKMANAGEMENT 205 // Forecasting Exchange Rates 206 // Why Multinational Firms Forecast Exchange Rates 206 Forecasting Techniques 207 Technical Forecasting 208 Fundamental Forecasting 209 Market-Based Forecasting 214 Mixed Forecasting 215 Forecast Performance of Consulting Firms 215 Further Examination of the Forward Rate as a Predictor 217 Flow to Evaluate Exchange Rate Forecasting Accuracy 218 Forecast Accuracy over Time 221 Forecast Accuracy among Currencies 222 Search for Forecast Bias 222 Graphic Evaluation of Forecasting Performance 224 Comparison of Forecasting Techniques 226 Relationship of Forecasting Performance to Market Efficiency 229 Summary 230 Questions/Problems

231 Project 233 Notes 233 References 233 // Developing Consistent Forecasts with the Use of Currency Betas 236 // Measuring Exposure to Exchange Rate Fluctuations 238 // Is Exchange Rate Risk Relevant? 238 Transaction Exposure 239 // Transaction Exposure to "Net" Cash Flows 239 Transaction Exposure Based on Currency Variability 242 Currency Variability over Time 243 // CONTENTS // xi // Transaction Exposure Based on Currency Correlations 243 Currency Correlations over Time 245 // Using Currency Correlations to Assess Transaction Exposure 247 Assessing Transaction Exposure: An Example 248 Economic Exposure 249 // Economic Exposure to Local Currency Appreciation 250 Economic Exposure to Local Currency Depreciation 251 Indirect Economic Exposure 252 . // Economic Exposure of Domestic Firms 252 Economic Exposure of MNCs 252 Measuring Economic Exposure 253 . // Translation Exposure 257 // Does Translation Exposure Matter? 257 Determinants of Translation Exposure 258 EASB-52 versus FASB-8 259 Examples of Translation Exposure 263 Summary 263 Questions/Problems 264 Projects 267 References 267 // Appendix 9A: // Appendix 9B: Appendix 9C: Appendix 9D: Appendix 9E: // Measuring Economic Exposure to Exchange Rate Fluctuations: // An Example 270 // Measuring Economic Exposure to a Country’s Economic Conditions 273 Market Reaction to MNC Policies 275 Currency Correlations and Portfolio Variability 277 Multinational Cash Budgeting 279 // CHAPTER 10 // Managing Transaction Exposure to Exchange

Rate Fluctuations 280 // Transaction Exposure 280 // Identifying Net Transaction Exposure 281 Is Hedging Worthwhile? 283 // Adjusting the Invoice Policy to Manage Transaction Exposure 283 Techniques to Eliminate Transaction Exposure 284 Futures Contract Hedge 284 Forward Contract Hedge 285 // The "Forward Contract Hedge" versus "No Hedge" Decision 285 Money Market Hedge 290 // Implications of Interest Rate Parity for Comparing the Forward Hedge and Money Market Hedge 292 Currency Option Hedge 292 Summary of Hedging Techniques 294 Limitation of Repeated Short-Term Hedging over Time 299 Hedging Long-Term Transaction Exposure 302 Long-Term Forward Contracts 302 Currency Swap 303 Parallel Loan 303 // xii // CONTENTS // Techniques to Reduce Transaction Exposure 304 Leading and Lagging 304 Cross-hedging 305 Currency Diversification 305 Summary 306 Questions/Problems 306 Projects 311 // References 311 * // Appendix 10: Hedging Foreign Exchange Exposure During Periods Surrounding Balance // of Trade Dates 314 // CHAPTER 11 Managing Economic Exposure and Translation Exposure to Exchange Rate Fluctuations 318 // Managing Economic Exposure 318 // Example of Managing Economic Exposure 318 Effect of Restructured Operations on Economic Exposure 320 Managing Translation Exposure 324 // Limitations of Hedging Translation Exposure 325 Summary 327 Questions/Problems 327 Project 329 References 329 // PART 4 // SHORT-TERM ASSET AND LIABILITY MANAGEMENT 331 // Financing International Trade 332

Terms of Payment for International Trade 332 Prepayment 333 Letter of Credit (L/C) 333 // Drafts 334 Consignment 334 Open Account 334 // Trade Finance Techniques 335 // Accounts Receivable Financing 335 // Factoring 336 // Letter of Credit (LC) 336 // Banker’s Acceptance 340 // Short-Term Bank Loans 342 // Forfaiting 343 // Countertrade 345 // Agencies that Motivate International Trade 346 Export-Import Bank of the U.S. 346 Foreign Credit Insurance Association (FCIA) 347 Private Export Funding Corporation (PEFCO) 348 Other Considerations 348 // CONTENTS // xiii // Summary 348 Questions 349 References 349 // CHAPTER 13 Short-Term Financing 350 // Sources of Short-Term Financing 350 // Internal Financing by MNCs 350 ’ // Why MNCs Consider Foreign Financing 351 // Foreign Financing to Offset Foreign Receivables 351 Foreign Financing to Reduce Costs 351 ’ // Determination of the Effective Financing Rate 353 Considerations When Financing in Foreign Currencies 354 // Interest Rate Parity as a Criterion for the Financing Decision 355 The Forward Rate as a Criterion for the Financing Decision 356 Use of Exchange Rate Projections 358 Financing with a Portfolio of Currencies 362 // Repeated Financing with a Currency Portfolio 365 Summary 366 Questions/Problems 367 Project 371 Notes 371 References 371 // CHAPTER 14 j International Cash Management 372 // Cash Flow Analysis; Subsidiary Perspective 372 Cash Flow Analysis: Centralized Perspective 374 Techniques to Optimize Cash Flows 376 Accelerating

Cash Inflows 376 // Using Netting to Minimize Currency Conversion Costs 376 Minimizing Tax on Cash Flow 378 Managing Blocked Funds 382 Inter-subsidiary Cash Transfers 382 Common Complications in Optimizing Cash Flow 383 Company-Related Characteristics 383 Government Restrictions 383 Characteristics of Banking Systems 384 Perceived Irrelevance of Cash Flow Optimization 384 Distorted Subsidiary Performance Due to Optimizing Cash Flow 384 Investing Excess Cash 385 // Centralized Cash Management 386 Determining the Effective Yield from Foreign Investing 389 Interest Rate Parity as a Criterion for the Foreign Investing Decision 391 // The Forward Rate as a Criterion for the Foreign Investing Decision 391 Forecasted Exchange Rates as a Criterion for the Foreign Investing Decision 393 // Diversifying Cash Across Currencies 398 // xiv // CONTENTS // Appendix 14A: // PARTS // CHAPTER 15 // Appendix 15: // CHAPTER 16 // Summary 399 Questions/Problems 399 Project 402 References 402 // Investing in a Portfolio of Currencies 405 // LONG-TERM ASSET AND LIABILITY MANAGEMENT 411 // Direct Foreign Investment 412 // Corporate Motives for Increasing International Business 412 Methods to Increase International Business 416 A Closer Look at Benefits of International Diversification 419 // Numerical Example of the Benefits of International Diversification 420 Assessment of the Relationships between Country Economies 422 The Direct Foreign Investment Decision 424 // Direct Foreign Investment as an Ongoing

Decision 427 Direct Foreign Investment Incentives Offered by Host Governments 428 Summary 429 Questions 429 Project 431 References 431 // International Stock Diversification 435 // Multinational Capital Budgeting 440 // Capital Budgeting: Subsidiary Versus Parent Perspective 440 Tax Differentials 440 Restricted Remittances 441 Excessive Remittances 441 Exchange Rate Movements 441 // Comparison of Subsidiary Perspective to Parent Perspective: An Example 441 // Input to the Capital Budgeting Decision 443 Multinational Capital Budgeting: An Example 446 Example: Background 446 Example: Analysis 448 // Factors to Consider in Multinational Capital Budgeting 450 Exchange Rate Fluctuations 450 Inflation 451 // Financing Arrangements 453 Blocked Funds 455 Remittance Provisions 455 Uncertain Salvage Value 456 // CONTENTS // XV // Impact of Project on Prevailing Cash Flows 457 Government Incentives 458 Social Costs 459 Threat of Expropriation 459 Divestiture Analysis 459 Multinational Acquisitions 461 Adjusting Project Assessment for Risk 462 // Risk-Adjusted Discount Rate 462 ¦ // Certainty Equivalent Attached to Cash Flows 463 Payback Period 463 // Sensitivity Analysis 464 ¦ // Simulation 464 // Capital Structure: Application to Capital Budgeting 466 // MNC Characteristics that Affect the Cost of Capital 470 // Cost of Capital Comparison Using the Capital Asset Pricing Model 472 // Summary 474 // Questions/Problems 475 // References 478 // CHAPTER 17 // Country Risk Analysis 479 // Increased

Awareness of Country Risk 479 Classifying Country Risk Factors 480 Political Risk Factors 480 // "Purchase Homemade Products" Philosophy 480 Attitude of Public 481 Attitude of Host Government 481 Blockage of Fund Transfers 481 Probability of War 481 Financial Risk Factors 482 Country Risk Assessment: Macro versus Micro 483 Macro-Assessment of Country Risk 483 Micro-Assessment of Country Risk 484 Techniques to Assess Country Risk 485 Checklist Approach 485 Delphi Technique 486 Quantitative Analysis 486 Inspection Visits 487 Combination of Techniques 487 Comparing Risk Ratings Among Countries 487 Quantifying Country Risk: An Example 488 Decision Making Based on Country Risk Assessment 491 Historical Performance of Country Risk Analysis by MNCs 492 Reducing Exposure to Host-Government Takeovers 494 Summary 496 Questions 497 Project 498 Notes 498 References 498 // xvi // CONTENTS // CHAPTER 18 // Appendix 18A: Appendix 18B: CHAPTER 19 // Long-Term Financing 500 // International Stock Markets 500 International Bond Markets 503 // Development and Background of the Eurobond Market 503 Long-Term Financing Decision of the Multinational Corporation 506 Financing with Bonds Denominated in a Stable Currency 508 Financing with Bonds Denominated in a Strong Currency 509 Financing with Bonds Denominated in a Weak Currency 510 Bond Financing Performance Based on Actual Data 511 Techniques to Evaluate Bond Denominaton Alternatives 513 Use of Exchange Rate Probabilities 513 Use of Simulation 514

// Floating-Rate Eurobonds: An Additional Risk to Consider 516 Offsetting Exchange Rate Risk of Debt Denominated in Foreign Currencies 517 // Long-Term Financing in Multiple Currencies 519 Currency Cocktail Bonds 520 Dual Currency Bonds 521 Deregulation of International Financial Markets 521 Summary 522 Questions/Problems 522 Project 523 References 523 // Using Swaps to Hedge Interest Rate or Exchange Rate Risk of Eurobonds 526 // Eurobonds as a Long-Term Investment 530 // Multinational Tax Planning and Corporate Policy 533 // International Tax Characteristics 533 Corporate Income Taxes 533 Withholding Taxes 534 // Provision for Carrybacks and Carryforwards 534 Tax Treaties 535 Tax Credits 535 // Use of Transfer Pricing to Reduce Taxes 536 // How MNC Policies are Influenced by International Tax Laws 537 // Multinational Corporate Policy 539 // Conflict of Interests between Subsidiary and Centralized Management 539 // Passive Role of Subsidiary Management Due to Centralization 541 Conflict of Interests among Corporate Departments 542 Accounting and Control 543 Summary 543 Questions 545 Project 545 References 546 // Tax Rate Information on Various Countries 549 // Appendix 19: // CONTENTS // xvii // PART 6 // THE INTERNATIONAL BANKING ENVIRONMENT 565 // CHAPTER 20 International Banking 566 // Motivation for International Banking 566 Evolution of International Banking 567 Development of the Eurocurrency Market 567 Exploration for New Services in International Banking 569 Migration

of Non-U.S. Banks into the United States 569 Risks to a Depositor in the Eurocurrency Market 570 Syndicated Eurocurrency Loans 570 Regulation in the Eurocurrency Market 571 Risks Incurred by a Eurobank 571 Default Risk of Loans Provided by Eurobanks 572 Exchange Rate Risk of Eurobanks 572 Interest Rate Risk of Eurobanks 573 All Risks Combined 575 // Key Components of the International Banking Network 575 Branch Banks 575 Edge Act Corporations 576 International Banking Facilities 576 Banking Regulations Among Countries 577 Summary 579 Questions 579 Project 580 References 580 // CHAPTER 21 // The International Debt Crisis and Bank Assessment of Country Risk 582 // Development of the International Debt Crisis 582 The Debt Crisis from a Banker’s Perspective 583 Should the U.S. Government Intervene in the Debt Crisis? 584 Impact of the Debt Crisis on Non-Bank MNCs 585 Impact of Floating Exchange Rates and Loan Rates on the Debt Crisis 586 Solutions to the Debt Crisis 587 // Bank Management of Loan Exposure Since the Debt Crisis 588 Sale of Loans to Reduce Exposure 588 Increasing Loan Loss Reserves 589 Use of Debt-Equity Swaps to Reduce Exposure 590 Reduction in New Loans to LDCs 590 Bank Assessment of Country Risk 591 Political Risk Factors 592 Financial Risk Factors 592 Country Risk Assessment Procedure 594 Summary 598 Questions 598