THÔNG TIN TÀI LIỆU
Prepare, Apply, and Confirm • E nhanced eText Features—Keep students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material through authorcreated solutions videos and animations • Dynamic Study Modules—Work by continuously assessing student performance and activity, then using data and analytics to provide personalized content in real time to reinforce concepts that target each student’s particular strengths and weaknesses • H allmark Features—Personalized Learning Aids, like Help Me Solve This, View an Example, and instant feedback are available for further practice and mastery when students need the help most! • L earning Catalytics—Generates classroom discussion, guides lecture, and promotes peer-to-peer learning with real-time analytics Now, students can use any device to interact in the classroom • A daptive Study Plan—Assists students in monitoring their own progress by offering them a customized study plan powered by Knewton, based on Homework, Quiz, and Test results Includes regenerated exercises with unlimited practice and the opportunity to prove mastery through quizzes on recommended learning objectives A00_MOFF9872_14_SE_FEP.indd 2-3 with MyFinanceLab ™ • W orked Solutions—Provide step-by-step explanations on how to solve select problems using the exact numbers and data that were presented in the problem Instructors will have access to the Worked Solutions in preview and review mode • A lgorithmic Test Bank—Instructors have the ability to create multiple versions of a test or extra practice for students • F inancial Calculator—The Financial Calculator is available as a smartphone application, as well as on a computer, and includes important functions such as cash flow, net present value, and internal rate of return Fifteen helpful tutorial videos show the many ways to use the Financial Calculator in MyFinanceLab 123 • R eporting Dashboard—View, analyze, and report learning outcomes clearly and easily Available via the Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner • L MS Integration—Link from any LMS platform to access assignments, rosters, and resources, and synchronize MyLab grades with your LMS gradebook For students, new direct, single sign-on provides access to all the personalized learning MyLab resources that make studying more efficient and effective • M obile Ready—Students and instructors can access multimedia resources and complete assessments right at their fingertips, on any mobile device 12/06/15 11:13 pm Prepare, Apply, and Confirm • E nhanced eText Features—Keep students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material through authorcreated solutions videos and animations • Dynamic Study Modules—Work by continuously assessing student performance and activity, then using data and analytics to provide personalized content in real time to reinforce concepts that target each student’s particular strengths and weaknesses • H allmark Features—Personalized Learning Aids, like Help Me Solve This, View an Example, and instant feedback are available for further practice and mastery when students need the help most! • L earning Catalytics—Generates classroom discussion, guides lecture, and promotes peer-to-peer learning with real-time analytics Now, students can use any device to interact in the classroom • A daptive Study Plan—Assists students in monitoring their own progress by offering them a customized study plan powered by Knewton, based on Homework, Quiz, and Test results Includes regenerated exercises with unlimited practice and the opportunity to prove mastery through quizzes on recommended learning objectives A00_MOFF9872_14_SE_FEP.indd 2-3 with MyFinanceLab ™ • W orked Solutions—Provide step-by-step explanations on how to solve select problems using the exact numbers and data that were presented in the problem Instructors will have access to the Worked Solutions in preview and review mode • A lgorithmic Test Bank—Instructors have the ability to create multiple versions of a test or extra practice for students • F inancial Calculator—The Financial Calculator is available as a smartphone application, as well as on a computer, and includes important functions such as cash flow, net present value, and internal rate of return Fifteen helpful tutorial videos show the many ways to use the Financial Calculator in MyFinanceLab 123 • R eporting Dashboard—View, analyze, and report learning outcomes clearly and easily Available via the Gradebook and fully mobile-ready, the Reporting Dashboard presents student performance data at the class, section, and program levels in an accessible, visual manner • L MS Integration—Link from any LMS platform to access assignments, rosters, and resources, and synchronize MyLab grades with your LMS gradebook For students, new direct, single sign-on provides access to all the personalized learning MyLab resources that make studying more efficient and effective • M obile Ready—Students and instructors can access multimedia resources and complete assessments right at their fingertips, on any mobile device 12/06/15 11:13 pm Multinational Business Finance F o u r t e e n t h E D I T I ON A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm The Pearson Series in Finance Berk/DeMarzo Corporate Finance* Corporate Finance: The Core* Berk/DeMarzo/Harford Fundamentals of Corporate Finance* Brooks Financial Management: Core Concepts* Copeland/Weston/Shastri Financial Theory and Corporate Policy Dorfman/Cather Introduction to Risk Management and Insurance Eakins/McNally Corporate Finance Online* Eiteman/Stonehill/Moffett Multinational Business Finance* Fabozzi Bond Markets: Analysis and Strategies Fabozzi/Modigliani/Jones Foundations of Financial Markets and Institutions Foerster Financial Management: Concepts and Applications* Frasca Personal Finance Gitman/Zutter Principles of Managerial Finance* Principles of Managerial Finance—Brief Edition* Haugen The Inefficient Stock Market: What Pays Off and Why Modern Investment Theory Holden Excel Modeling in Corporate Finance Excel Modeling in Investments Hughes/MacDonald International Banking: Text and Cases Hull Fundamentals of Futures and Options Markets Options, Futures, and Other Derivatives Keown Personal Finance: Turning Money into Wealth* Keown/Martin/Petty Foundations of Finance: The Logic and Practice of Financial Management* Madura Personal Finance* Marthinsen Risk Takers: Uses and Abuses of Financial Derivatives McDonald Derivatives Markets Fundamentals of Derivatives Markets Mishkin/Eakins Financial Markets and Institutions Moffett/Stonehill/Eiteman Fundamentals of Multinational Finance Nofsinger Psychology of Investing Pennacchi Theory of Asset Pricing Rejda/McNamara Principles of Risk Management and Insurance Smart/Gitman/Joehnk Fundamentals of Investing* Solnik/McLeavey Global Investments Titman/Keown/Martin Financial Management: Principles and Applications* Titman/Martin Valuation: The Art and Science of Corporate Investment Decisions Weston/Mitchell/Mulherin Takeovers, Restructuring, and Corporate Governance *denotes MyFinanceLab titles Log onto www.myfinancelab.com to learn more A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm Multinational Business Finance F o u r t e e n t h Edi t i o n David K Arthur I Michael H Eiteman Stonehill Moffett University of California, Los Angeles Oregon State University and University of Hawaii at Manoa Thunderbird School of Global Management at Arizona State University Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm Vice President, Business Publishing: Donna Battista Acquisitions Editor: Kate Fernandes Editorial Assistant: Kathryn Brightney Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Senior Product Marketing Manager: Alison Haskins Executive Field Marketing Manager: Adam Goldstein Team Lead, Program Management: Ashley Santora Program Manager: Kathryn Dinovo Team Lead, Project Management: Jeff Holcomb Project Manager: Meredith Gertz Operations Specialist: Carol Melville Creative Director: Blair Brown Art Director: Jon Boylan Vice President, Director of Digital Strategy and Assessment: Paul Gentile Manager of Learning Applications: Paul DeLuca Digital Editor: Megan Rees Director, Digital Studio: Sacha Laustsen Digital Studio Manager: Diane Lombardo Digital Studio Project Manager: Melissa Honig Product Manager: Elizabeth Cameron Digital Content Team Lead: Noel Lotz Digital Content Project Lead: Miguel Leonarte Project Management and Text Design: Gillian Hall Composition and Art Creation: Laserwords Maine Cover Designer: Joyce Wells Cover Art: © iStock by Getty Images/chinaface Printer/Binder: Edwards Brothers Malloy Cover Printer: Phoenix Color/Hagerstown Copyright © 2016, 2013, 2010 by Pearson Education, Inc or its affiliates All Rights Reserved Manufactured in the United States of America This publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise For information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department, please visit www.pearsoned.com/permissions/ Acknowledgments of third-party content appear on the appropriate page within the text, which constitutes an extension of this copyright page PEARSON, ALWAYS LEARNING, and MYFINANCELABTM are exclusive trademarks owned by Pearson Education, Inc or its affiliates in the U.S and/or other countries Unless otherwise indicated herein, any third-party trademarks that may appear in this work are the property of their respective owners, and any references to third-party trademarks, logos, or other trade dress are for demonstrative or descriptive purposes only Such references are not intended to imply any sponsorship, endorsement, authorization, or promotion of Pearson’s products by the owners of such marks, or any relationship between the owner and Pearson Education, Inc or its affiliates, authors, licensees, or distributors Library of Congress Cataloging-in-Publication Data Eiteman, David K Multinational business finance / David K Eiteman, University of California, Los Angeles, Arthur I Stonehill, Oregon State University and the University of Hawaii at Manoa, Michael H Moffett, Thunderbird School of Global Management.—Fourteenth edition pages cm Includes index ISBN 978-0-13-387987-2 International business enterprises Finance I Stonehill, Arthur I II Moffett, Michael H III Title HG4027.5.E36 2015 658.15’99 dc23 2015020241 10 9 8 7 6 5 4 3 2 1 ISBN-13: 978-0-13-387987-2 ISBN-10: 0-13-387987-9 A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm Preface Multinational Business Finance, Fourteenth Edition, continues to evolve as the global business and financial environment it describes evolves Institutions, markets, and business itself are changing rapidly, challenging many long-held assumptions of financial management We have chosen to design the content of this edition along three points of emphasis ■■ ■■ ■■ Organizations of All Kinds. Multinational enterprises (MNEs) applies to organizations of all kinds—the publicly traded, the privately held, the state-run, the stateowned organizations—all forms that permeate global business today Role of Emerging Markets. Firms from all countries and all markets are looking to the economic drivers of the global economy today, the emerging markets, and the many new roles they play in terms of competition and opportunity These markets present a multitude of specific risks and challenges for multinational business and finance Financial Leadership. The leaders of MNEs face numerous foreign exchange and political risks These risks can be daunting but they also present opportunities for creating value if properly understood These opportunities and risks are most effectively understood in the context of the global business itself, and the ability of management to integrate the strategic and financial challenges that business faces New in the Fourteenth Edition The theme for this Fourteenth Edition could in some ways be considered an emerging market strength, weakness, opportunity, threat (SWOT) analysis A world in which the developed or industrialized countries see slower growth, poorer job opportunities, and a growing insecurity over their competitiveness in the global marketplace, but emerging markets offer promise and risk A short overview of the features in the Fourteenth Edition can be segmented into structure and teaching, content and theoretical structures, and new Mini-Case offerings Book Structure and Teaching ■■ ■■ ■■ ■■ ■■ A01_MOFF9872_14_SE_FM.indd All chapters are structured around a series of pedagogical Learning Objectives aligned with the MyFinanceLab platform for Multinational Business Finance’s teaching An increased focus is placed on how multinational firms financially operate similarly/ differently across industrial markets and emerging markets A new chapter, Chapter 8, is devoted solely to interest rate risk and interest rate risk management, with a focus on the use of interest rate and cross-currency swaps A multitude of new Mini-Cases explore the current global financial market’s many challenges End-of-chapter questions and problems are revised throughout, aligned with MyFinanceLab, and cover the gamut of the increasing complexity of how multinational enterprises—for profit and not-for-profit—operate and compete globally v 12/06/15 10:02 pm vi Preface Content and Theoretical Structures ■■ ■■ ■■ ■■ Two-level chapter structure is offered with primary chapter content focused on critical components of multinational corporate finance Selected second-level complexity of chapter content is delivered in appendices devoted to topics such as algebraic derivation of international parity conditions, foreign currency option pricing theory, advanced topics in transaction exposure hedging, foreign subsidiary funding and capitalization, among others Use of fundamental theoretical foundations is expanded like that of the foreign currency/interest rate box diagram and the triangular structure of the Impossible Trinity Selected business and industry practices are delivered in Global Finance in Practice boxes in each chapter that both support and on occasion oppose theoretical principles in international finance New Chapter Mini-Cases Nine of the 18 chapter Mini-Cases in the fourteenth edition are new: ■■ ■■ ■■ ■■ ■■ ■■ ■■ ■■ ■■ Chapter on Multinational Financial Management: Crowdfunding Kenya Chapter on the International Monetary System: Iceland: A Small Country in a Global Crisis Chapter on the Balance of Payments: Global Remittances Chapter on Foreign Currency Futures and Options: KiKos and the South Korean Won Chapter on Interest Rate Derivatives and Swaps: Argentina and the Vulture Funds Chapter on Exchange Rate Determination: Russian Ruble Roulette Chapter 10 on Transaction Exposure: China Noah Corporation Chapter 15 on Multinational Tax Management: Apple’s Global iTax Strategy Chapter 18 on Multinational Capital Budgeting and Cross-Border Acquisition: Elan and Royalty Pharma A final note on style International finance is a subject of sophistication, constant change, yet rich in history We have tried to bridge the past and future with a mix of currency notations and symbols throughout the book, using both the increasingly common three-letter currency codes—USD, CNY, EUR—with the currency symbols of the past—$, ¥, £, €—which live on in modern media Audience Multinational Business Finance, Fourteenth Edition, is aimed at university-level courses in international financial management, international business finance, international finance, and similar titles It can be used at either the undergraduate or graduate level as well as in executive education and corporate learning courses A prerequisite course or experience in corporate finance or financial management would be ideal However, we review the basic finance concepts before we extend them to the multinational case We also review the basic concepts of international economics and international business Over many years and many editions, as language translations and sales have expanded, we have observed a widening global audience for this book We continue to try to service this A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm Preface vii greater global audience with multicountry companies and markets in theoretical applications, examples, Mini-Cases, and Global Finance in Practice features, as seen in the business and news press (including anecdotes and illustrations) Organization Multinational Business Finance, Fourteenth Edition, has a number of new subjects, but is also shorter This has been accomplished by integrating a number of previous topics along financial management threads The book is in five parts, the parts unified by the common thread of the globalization process by which a firm moves from a domestic to a multinational business orientation ■■ ■■ ■■ ■■ ■■ Part introduces the global financial environment Part explains foreign exchange theory and markets Part analyzes foreign exchange exposure Part explores the financing of the global firm Part analyzes foreign investments and operations Pedagogical Tools To make Multinational Business Finance, Fourteenth Edition, as comprehensible as possible, we use a large number of proven pedagogical tools Again, our efforts have been informed by the detailed reviews and suggestions of a panel of professors who are recognized individually for excellence in the field of international finance, particularly at the undergraduate level Among these pedagogical tools are the following: ■■ ■■ ■■ ■■ ■■ ■■ ■■ A01_MOFF9872_14_SE_FM.indd A student-friendly writing style is utilized combined with a structured presentation of material, beginning with learning objectives for each chapter, and ending with a summarization of how those learning objectives were realized A wealth of illustrations and exhibits provide a visual parallel to the concepts and content presented A running case on a hypothetical U.S.-based firm, Trident Corporation, provides a cohesive framework for the multifaceted globalization process, and is reinforced in several end-of-chapter problems A Mini-Case at the end of each chapter illustrates the chapter (18 in all) content and extends it to the multinational financial business environment And as noted, of the 18 Mini-Cases in the Fourteenth Edition are new Global Finance in Practice boxes in every chapter illuminate the theory with accounts of actual business practices These applications extend the concepts without adding to the length of the text itself The power and resources of the Internet are leveraged throughout the text in a variety of applications Every chapter has a number of end-of-chapter exercises requiring the use of the Internet, while a variety of Internet references are dispersed throughout the chapters in text and exhibits A multitude of end-of-chapter questions and problems, which assess the students’ understanding of the course material, are included All end-of-chapter problems are solved using spreadsheet solutions Selected end-of-chapter problem answers are included at the back of the book 12/06/15 10:02 pm www.downloadslide.net Index J Japanese yen carry-trade case, 167–170 currency intervention of 2010, 250–252 equity example, 362–363 symbol/ISO code for, 129 technical analysis of JPY/USD rate, 245 J-curve, 69 J-curve adjustment path, trade balance, 70–71 Joint venture (JV) cultural/institutional risk and, 499 effect of transfer pricing on, 434 foreign direct investment via, 486 ownership in, 88 risks of exporting vs production abroad, 484 strategic alliances formed as, 487 Just-in-time (JIT) near-zero inventory systems, 503–504 K Kenya, crowdfunding, 19–22 Keynes, Lord John Maynard, 31 KiKos and the South Korean won, Mini-Case, 203–208 “Kiwi” (New Zealand dollar), 131, 192 Knowledge, as rationale for MNEs, 15 Koch Industries, 89 Krieger, Andrew, 192 Krona, in Icelandic crisis, 49–54 L Labor flows, between countries, 12 Lambda see Volatility, sensitivity to (lambda) Latin American Free Trade Association (MERCOSUR), 501 Law of one price algebraic primer for, 177 defined, 148 purchasing power parity and, 148–150 Leaning into the wind, for effective intervention, 250 Legal advisers, corporate governance, 100–101 Legal liabilities, of MNEs, 501 Legal system, corporate governance regimes, 103 Lending, transaction exposure due to, 279 Letter of credit (L/C) advantages/disadvantages of, 457–458 confirmed vs unconfirmed, 456 Z03_MOFF9872_14_SE_IDX.indd 579 defined, 453 eliminating risk of noncompletion with, 454, 455–456 revocable vs irrevocable, 456 Levels of certification, depositary receipts, 396–397 Liabilities, methods for translating, 315, 316 Licensing foreign direct investment via, 485–486 risks of exporting vs production abroad, 484 Link financing, 498 Linkages, currency in global marketplace, 4–5 Liquidity see Market liquidity Liquidity seekers, foreign exchange market, 121 Listings measurement, on stock exchange, 97–98 Loans budgeting for foreign project, 512 Eximbank financing U.S exports via, 462–463 financing cash flows for payment of, 333–334 floating-rate, 218–220 fronting, 498 international bank, 403–404 measuring cost of debt from, 361 raising debt globally with international bank, 404 Local sourcing, predicting political risk, 495 Location deciding where to invest, 483–484 minimizing political risk, 495 OLI Paradigm and advantages of, 482–483 Lock Law, Argentina, 232 London Interbank Offered Rate (LIBOR) core component of global financial system, eurocredits tied to, 404 eurocurrencies and, 11 floating-rate loans and, 218–220 interest rate swaps and, 223–226 as most often used reference rate, 210–211 trouble with, 210 London Stock Exchange (LSE) liquidity of NYSE over, 401 in Novo case, 377–378 raising equity by cross-listing on, 392 shift to electronic trading, 401 579 Long positions, futures, 183–184 Long run cash flows, in operating exposure, 336 Long-term trends, forecasting exchange rates, 261–262 Long-term value maximization, SWM model, 91–92 Lookback options, 312 Look-through-rules, taxation of disregarded entities, 435 “Loonie” (Canadian dollar), 131 Losses buyer of call options, 188 buyer of put options, 190 in operating exposure, 340–341 Toyota’s European operating exposure and, 350–352 in translation exposure, 316, 320–322 writer of call options, 189 writer of put options, 191–192 Low leverage vs rapid expansion, global challengers, 488–489 LSE see London Stock Exchange (LSE) Luxury Wars—LVMH vs Hermès, Mini-Case, 108–112 M Maastricht Treaty, 39 Macroeconomic rates, BOP impact on key, 68–70 Macroeconomic uncertainty, 334 Madrid Interbank Offered Rate (MIBOR), 210 Mahathir Mohamad, 255 Maker (drawer or originator), draft, 458 Malaysia, capital controls in, 75–76 Managed floats, impact of BOP on, 69 Management corporate governance, 101, 102–103 currency risk see Currency risk, second-generation products effect of transfer pricing on, 433–434 exchange rates and, 334 foreign direct investment budgets, 511–512 foreign direct investment contracts, 485–486 foreign direct investment expertise, 479 of global specific risks, 502–505 good corporate governance, 104 of joint ventures, 486 operating exposure proactively see Proactive management, operating exposure 12/06/15 10:19 pm www.downloadslide.net 580 Index Management (Continued) operating exposure strategically, 341–344 operational goals of, 93–96 overview of, 90–91 post-acquisition, 532–533 purchase compensation plans for, 402 responses to shareholder dissatisfaction, 106 of risk, using hedging see Hedging Sarbanes-Oxley Act regulations for senior, 105–106 separating ownership from, 90 shareholder wealth maximization model for, 91–92 stakeholder capitalism model for, 92–93 translation exposure, 322–324 translation gain or loss and, 322 Mandelbrot, Benoit, 505–507 Margin (or collateral) requirement, futures, 183 Margin vs volume, global challengers, 488 Marginal cost of capital (MCC), 370, 373–374 Marginal domestic cost of capital (MCCD), 370 Marginal return on capital (MRR), 370, 374 Marked-to-market, futures, 183 Market index (km) CAPM, 360 ICAPM, 364 Market liquidity eurocurrency deposits holding excess, 10 for firm’s securities, 359 foreign equity listing/issuance for, 400–401 foreign exchange market structure and, 119 improving, 368–369 of interest rate futures, 220 over-the-counter options for, 185 private placements not affecting, 399 secondary markets for, 402 segmentation/cost of capital and, 362, 368–371 Market return (k mg), ICAPM, 363–366 Market risk premium (k mg - k grf), ICAPM, 363–366 Market segmentation budgeting for foreign project, 511 effect of, 369–371 in Novo case, 376–379 overview of, 369 Market value, of exchange rate, 245 Z03_MOFF9872_14_SE_IDX.indd 580 Market-based corporate governance regimes, 102 Markets competitiveness of home, 480–481 controls minimizing political risk, 495–496 Elan and Royalty Pharma valuation, 537–539 exporting vs production abroad, 484 foreign direct investment expertise in, 479 global financial marketplace currency, 5–9 strategic alliances formed for, 487 Markowitz, Harry, 505–507 Matching currency cash flows, 344–345 with money market hedge, 282–283 Maturities cost of debt changing over, 213 financing sovereign debt by selling, 215 Maturity, forfaiting transactions, 468 MCC (marginal cost of capital), 370, 373–374 MCCD (marginal domestic cost of capital), 370 McDonald’s Corporation Big Mac Index, 149 investment/translation risks case, 325–327 Panda Bonds issued by, 46 Measurement cost of capital, 359–360 cost of debt, 361 cost of equity, 360–361 of operating exposure, 335–341 of transaction exposure, 278–280 Medium run cash flows, measuring operating exposure, 335–336 Merck (U.S.), 349 MERCOSUR (Latin American Free Trade Association), 501 Mergers cross-border see Cross-border mergers and acquisitions delisted from stock exchange, 98 with large/small foreign firms as corporate inversion, 440 Mexico as MINT country, role of remittances in, 81 symbol/ISO code for peso, 129 MFT (Modern Portfolio Theory), 505–507 MIBOR (Madrid Interbank Offered Rate), 210 Migrant remittances, Mini-Case, 78–82 Mini-Cases Apple’s global iTax strategy, 441–445 Argentina and vulture funds, 231–235 Crosswell International and Brazil, 469–472 crowdfunding Kenya, 19–22 Elan and Royalty Pharma, 535–539 global remittances, 78–82 Hermès vs LVMH luxury wars, 108–112 Icelandic crisis, 49–54 Japanese yen carry-trade, 167–170 KiKos and the South Korean won, 203–208 McDonald’s, Hoover Hedges, and cross-currency swaps, 325–327 Petrobrás of Brazil and cost of capital, 409–412 Russian ruble roulette, 263–266 Strategic Portfolio Theory, Black Swans and avoiding being the turkey, 505–507 Toyota’s European operating exposure, 350–352 Venezuelan bolivar black market, 138–141 Mini-max, currency risk management, 308–309 Mining bitcoins, MINT (Mexico, Indonesia, Nigeria, Turkey), MNEs and, MNE see Multinational enterprise (MNE) Modern Portfolio Theory (MFT), 505–507 Monetary approaches, foreign exchange rate determination, 244 Monetary assets, translating with temporal method, 316 Monetary independence, impossible trinity, 37–38 Monetary system see International monetary system Money laundering, 76 Money market hedge for foreign exchange exposure, 297–298 managing account payable, 287–288 managing transaction exposure, 282–284 Money markets, reinvesting blocked funds in local, 499 Money transfer operators (MTOs), 81 Morgan, J.P., 393 12/06/15 10:19 pm www.downloadslide.net Index Morgenthau, Henry, Jr., 31 MRR (marginal return on capital), 370, 374 MTOs (money transfer operators), 81 Multinational capital budgeting see Capital budgeting, MNE Multinational enterprise (MNE) cost of capital for domestic firms vs., 372–375 operational goals for, 94–96 optimal financial structure and, 387–389 Multinational enterprise (MNE) financial management crowdfunding Kenya case, 19–22 financial globalization and risk, 3–4 global marketplace see Global financial marketplace globalization process, 15–18 international vs domestic, 13–14 review, 19, 22–27 as subject of this book, 2–3 theory of comparative advantage, 11–13 using market imperfections, 14–15 Multinational phase, globalization process, 16–17 N NAFTA (North American Free Trade Agreement), 16 Nakamoto, Satoshi, Naked inversions, 439 NASDAQ (New York), 401 National tax environments, 423 Natural hedges, 280, 345 NDFs (nondeliverable forwards), 125–126 Negotiable instruments, creating drafts as, 458–459 Nepotism, as cultural/institutional risk, 500 Nestlé of Switzerland, ICAPM, 365–366 Net errors and omissions account, balance of payments, 58–59, 65–66 Net international investment position (NIIP), 59, 64–65 Net operating cash flow (NOCF), in terminal value, 520 Net present value (NPV), 520, 521 Network perspective, foreign direct investments, 484 Neutral zone, Russian ruble, 264 Neutrality, tax, 422–423 New York Stock Exchange (NYSE) equity markets of, 101 liquidity of, 401 Z03_MOFF9872_14_SE_IDX.indd 581 in Novo case, 378 regulations, 101 shift to electronic trading, 401 Nicknames currency, 131 foreign bond, 406 Nifs (note issuance facilities), euronotes, 404 NML Ltd v Republic of Argentina, 234–235 NOCF (Net operating cash flow), terminal value, 520 Noise, forecasting exchange rates, 261–262 Nominal effective exchange rate index, 152, 155–156 Non-amortizing swaps, 227–228 Nonbank foreign exchange dealers, 121–122 Noncompletion risks, international trade finance, 453–455 Nondeliverable forwards (NDFs), 125–126 Non-tariff barriers, host country protectionism of, 501 Nonunderwritten facilities, euronote market, 404 North American Free Trade Agreement (NAFTA) antiglobalization movement, 504 globalization process and, 16 MNEs reducing protectionism via, 501 North Korean won, revaluation of, 150 Norway maintaining individual currency, 40 Statoil’s acquisition of Esso of Sweden, 534 Note issuance facilities (nifs), euronotes, 404 Notional principle cash flows of interest rate swaps applied to, 222 counterparty risk and, 230 in cross-currency swaps, 227 forward rate agreements on, 221 interest rate futures applied to, 220 in interest rate swaps, 223–226 options that vary by amount, 185 Novo (Novo Industri A/S) Mini-Case, 376–379 raising of initial capital, 386 NPV (Net present value), 520, 521 Nycomed firm, 392–393 NYSE see New York Stock Exchange (NYSE) 581 O OCI (Other Comprehensive Income), 327 OECD see Organization for Economic Cooperation and Development (OECD) Official Reserves Account, BOP, 58–59, 66–67 Offshore tax strategy avoiding taxes on Subpart F income, 428 financial centers and tax havens, 435–437 Google and profit repositioning, 437–439 profits and dividend repatriation, 431 tax deferral on outsourced services, 424 Offshore two-market structure, RMB, 45–46 Offshoring, defined, 424 Oil prices, Russian ruble, 265–266 OLI Paradigm, 481–483 One-share-one-vote rule, shareholder wealth maximization model, 91 Online services, cross-border remittances, 81 Onshore two-market structure, Chinese renminbi, 45–46 Operating cash flows capital lifecycle, 20 measuring operating exposure, 333–334, 337–341 operating hedges utilizing, 280 types of contractual hedges utilizing, 275 Operating exposure cross-border acquisitions, 534 defined, 275 expected vs unexpected changes in cash flows, 333–334 measuring, 335–341 operating and financing cash flows, 333–334 overview of, 331 proactive management of, 344–349 review, 350, 353–356 static vs dynamic, 332–333 strategic management of, 341–344 structure/operations of MNE determining, 331–332 Toyota’s European case, 350–352 transaction exposure vs., 331 Operating hedges, 280 12/06/15 10:19 pm www.downloadslide.net 582 Index Operating strategies, foreign direct investment, 494–495 Operational band, Russian ruble, 264 Operational goals maximizing shareholder value with, 93–95 for MNEs, 94–96 Operational risk, 91, 92 OPIC (Overseas Private Investment Corporation), 494 Optimal financial structure and MNEs, 387–389 overview of, 386–387 Optimal hedge ratio, 290–291 Option collar (range forward), currency risk management, 308–309 Option fence, currency risk management, 308–309 Option hedges managing account payable, 288 managing transaction exposure, 284–285 Option hedges, complex constructing synthetic forward, 306–307 currency risk products see Currency risk, second-generation products overview of, 305–306 Options see Foreign currency options Options Clearing Corporation (OCC), 186 Organization for Economic Cooperation and Development (OECD) Committee on Fiscal Affairs, 433 globalization of securities markets, 371, 379 goal of corporate governance, 99 stopping basis erosion/profit shifting, 439 territorial tax system of, 424 Other Comprehensive Income (OCI), 327 Outcome, hedging transaction exposure, 286 Out-of-the-money (OTM) foreign currency options, 185 intrinsic value of, 193 spot rate sensitivity of currency options, 194–195 Outright forward (or forward) transactions, 124–126, 156–158 Overseas Private Investment Corporation (OPIC), 494 Overshooting, exchange rate dynamics, 262–263 Z03_MOFF9872_14_SE_IDX.indd 582 Over-the counter (or pink sheets) DR programs, 396 Over-the-counter market (OTC) options counterparty risk in, 230 defined, 185 overview of, 185–186 Overvaluation exchange rate indices determining, 152–153 measuring with law of one price, 149–150 Ownership of bitcoins, capital controls preventing foreign, 75 comparative corporate governance and, 102–103 constructive, in controlled foreign corporations, 428 cultural/institutional risk and, 499 in foreign direct investment via joint venture, 486 joint venture vs wholly owned subsidiary, 486–487 OLI Paradigm and advantages of, 482–483 risks of financial globalization, separating management from, 90 types of business, 87–90 P Panama, dollarization in, 42 Paper currency, symbols for, 129 Parent viewpoint capital budget, 522–523 constructing capital budget, 521–522 vs project viewpoint, 512–514 sensitivity analysis, 524–526 pari passu clause, 231 Paris Interbank Offered Rate (PIBOR), 210 Parity conditions, international defined, 147 forward rate as predictor of spot rate, 164–165 interest rates and exchange rates see Interest rates and exchange rates Japanese yen carry-trade case, 167–170 overview of, 147 prices and exchange rates, 148–155 prices/interest rates/exchange rates and, 165–166 review, 167, 170–176 Participating forwards, currency risk management, 308, 309–311 Participation rate, participating forwards, 311 Partnerships, defined, 88 Passive income as Subpart F income, 428 withholding tax on, 425 Pass-through period, trade balance adjustment, 70–72 Payables, matching currency cash flows for, 345 People’s Republic of China (PRC), 45–47 Percentages changes in spot rates, 136 forward quotations in, 137 Perfect hedge, defined, 291 Permanent establishment (PE), Google tax strategy, 438 Person, U.S., 428 Petrobrás (Petróleo Brasileiro S.A.) and cost of capital case, 409–412 as global beta, 366 ownership of, 88–89 Phi value as option premium component, 199 sensitivity of options to differential between interest rates, 198–199 Philadelphia Stock Exchange (PHLX) exchange-traded options, 186 lowering counterparty risk with, 230 PIBOR (Paris Interbank Offered Rate), 210 Pink sheets (over-the counter) DR programs, 396 Plain-vanilla swap cross-currency swaps vs., 227 defined, 222 example application of, 223–224 strategies, 224–225 Planned divestment, 494 Plaza Agreement, September 1985, 249 Point of financial distress, defined, 277 Policies, in good corporate governance, 104 Policy, U.S tax neutrality, 422–423 Political risk acquiring MNEs for safety, 15 budgeting for foreign project, 512 controls to minimize, 495–496 country-specific, cultural/ institutional risk, 499–502 country-specific, predicting, 491–492 country-specific, transfer risk, 496–499 defining and classifying, 490–491 for exporting vs production abroad, 484 12/06/15 10:19 pm www.downloadslide.net Index facility location minimizing, 495 FDI via licensing/contracts and, 485–486 firm-specific, governance risk, 493 firm-specific, predicting, 491 foreign direct investment operating strategies and, 494–496 foreign equity listings and, 402 global-specific, managing, 502–505 global-specific, predicting, 492–493 of international vs domestic financial management, 13 investment agreements and, 493–494 of joint ventures vs wholly owned subsidiaries, 487 local sourcing and, 495 multiple-source borrowing minimizing, 496 in Novo case, 377 OPIC investment insurance/ guarantees, 494 overview of, 490 project viewpoint sensitivity analysis of, 523–524 thin equity base and, 496 Political risk analysts, 491 Portfolio investment balance approach to exchange rate determination, 244 defined, 62 as financial account of BOP, 63–64 international theory of see International portfolio theory/ diversification in Novo case, 376–377 risk reduction, 361 strategic alliances formed as, 487 Portfolio investors, international expectations of, 389 globalization of securities markets, 371–372 link between cost/availability of capital, 368 market liquidity improvement, 368–369 market liquidity/segmentation effects, 369–371 market segmentation and, 369 overview of, 367–368 risk measurement, 526–527 Post-acquisition management stage, cross-border acquisitions, 532–533 Poverty, political risks of MNEs and, 505 PPP see Purchasing power parity (PPP) Z03_MOFF9872_14_SE_IDX.indd 583 PRC (People’s Republic of China), 45–47 Precious Diaper, 469–472 Precious metals, moving cash via, 76 Predictability, hedging the unhedgeable, 349 Preinvestment strategy, anticipating blocked funds, 497 Premium price, options alternative strike prices and, 199 for buyer of call, 187–188 for buyer of put, 190 calculating time to maturity, 195–196 pricing sensitivity see Price sensitivity, currency options pricing/valuation and, 192–193 for writer of call, 189 for writer of put, 191 Prenegotiation, governance risks, 493 Pre-seed capital, capital lifecycle, 19–20 Price (or quote) currency, exchange rate quotes, 129–130 Price controls, investment agreements with host/MNEs, 494 Price elasticity of demand, 154 Price sensitivity, currency options alternative strike prices/ premiums, 199 changing interest rate differentials, 198–199 forward rate, 194 overview of, 193–194 spot rate, 194–195 time to maturity, value/deterioration, 195–196 volatility, 196–197 Prices currency options, 186–190 in equilibrium with interest rates/ exchange rates, 165–166 and exchange rates, 148–155 remittance, 79–80 Principal agent (or agency) problem, 90 Private enterprises, defined, 88 Private equity, capital lifecycle, 20–21 Private equity funds, 399–400 Private pathway, raising equity capital, 390 Private placement overview of, 399 private equity funds, 399–400 raising equity through, 389–391 SEC Rule 144A, 399 Swedish example of, 393 Privately held businesses defined, 88 583 global shift from publicly traded to, 96–99 MNE operational goals for hybrid, 95–96 ownership vs control in, 89 publicly traded companies moving to, 90 shareholder return objectives of, 94–95 Proactive management, operating exposure back-to-back (or parallel) loans, 347–348 cross-currency swaps, 348–349 hedging with contractual hedges, 349 matching currency cash flows, 344–345 overview of, 344 risk-sharing agreements, 345–346 Procter & Gamble Co (P&G) and Banker’s Trust, 230 on challenges of MNEs, 2–3 Product innovation, in global remittances, 81 Production abroad vs exporting, 484 cross-border supply chain integration with, 503 efficiency when rationalizing MNEs, 15 of joint ventures vs wholly owned subsidiaries, 487 reinvesting blocked funds into local, 499 Profit buyer of call options, 188 buyer of put options, 190 in covered interest arbitrage, 159–162 Google’s repositioning of, 437–439 linking good corporate governance to, 105, 107 MNEs maximizing consolidated, 95 motivating portfolio investments, 63–64 tax incentives for repatriating, 429 taxes on undistributed, 427 writer of call options, 189 writer of put options, 191–192 Profit seekers, foreign exchange market, 121 Project viewpoint capital budget, 519–520 vs parent viewpoint, 512–514 sensitivity analysis, 523–524 12/06/15 10:19 pm www.downloadslide.net 584 Index Proof of concept, capital lifecycle, 19–20 Property tax, 427 Prospectus, IPO, 391 Protectionism, managing, 501 Psychic distance, behavioral approach to FDI, 484 Public enterprise, defined, 88 Public float, raising equity capital, 391 Public pathway, raising debt globally, 390 Public reporting, good corporate governance, 104 Public services, red-tape charges for, 427 Publicly traded companies control of, 89–90 defined, 88 formation of, 89 global shift in decline of, 96–99 MNE operational goals for, 95–96 regulators in corporate governance structure, 101 risks of, 94–95 separation of ownership from management in, 90 Publicly traded shares businesses choosing, 89 defined, 88 global shift in decline of, 96–99 Purchasing power, in foreign exchange market, 119 Purchasing power parity (PPP) absolute, 148 algebraic primer for, 177–178 approach to exchange rate determination, 243 capital budgeting example, 514–519 empirical tests of, 151–152 in equilibrium, 165–166 exchange rate indices and, 152 exchange rate pass-through and, 152–155 and law of one price, 148–150 relative, 150–151 Put options buyers of, 190 overview of, 184–185 participating forwards, 309–311 range forwards (option collars), 308–309 ratio spreads, 311 synthetic forwards, 306–307 writers of, 191 Q Qualified institutional buyers (QIBs), private placements, 399 Z03_MOFF9872_14_SE_IDX.indd 584 Quantitative easing (QE), and LIBOR, 211 Quantity adjustment period, trade balance, 71–72 Quotation exposures, 278–279, 289 Quotations currency option, 186–187 foreign exchange see Foreign exchange rates/quotations Quote (price) currency, exchange rate quotes, 129–130 R Range forward (option collar), currency risk management, 308–309 Rapid expansion vs low leverage, global challengers, 488–489 Ratings, eurobonds vs U.S., 407 Ratio spreads, currency risk management, 311 Raw materials, rationalizing MNEs, 14 Real assets, dominating balance of payments, 59 Real effective exchange rate index Fisher effect and, 155–156 overview of, 152–153 Real option analysis, 526 Receivables matching currency cash flows for, 345 operating cash flows, 333 Red-tape charges, public services, 427 Reference rate, defined, 210 Refinancing, managing interest rate risk, 219 Reform, corporate governance, 105–106 Regional markets in antiglobalization movement, 504 MNEs reducing protectionism via, 501 Regulations for cross-border acquisitions, 532 and eurobond market, 406 Regulators Continuous Linked System, 123 corporate governance, 100–101, 105–106 Reinvestment, forced, 499 Relationships, trade, 450–453 Relative price of bonds approach, exchange rate determination, 244 Relative purchasing power parity empirical tests of, 151–152 in foreign exchange rate determination, 243 overview of, 150–151 Relative real interest rates asset market approach to forecasting, 245–246 determining foreign exchange rates, 242 Religious heritage, cultural/ institutional risk and, 500 Remittance Prices Worldwide (RPW), 79–82 Remittances budgeting for foreign project, 511 capital budgeting example, 520–521 global migrant worker, 78–82 Renminbi (RMB) see Chinese renminbi (RMB) Repositioning of profit, Google, 437–439 Repricing risk, 214, 218 Reputation, corporate governance and, 104 Resale prices, transfer pricing, 433 Reserve (anchor) currency Chinese renminbi and, 47 in good corporate governance, 68 in Official Reserves Account of BOP, 58–59, 66–67 Russian ruble and, 266 Triffin Dilemma and, 47–48 Residential approach, to national taxes, 423 Residual regimes, IMF exchange rates, 34–36 Responsibility, corporate, 14, 106–107 Revaluation of currency, 37 Revenue, capital controls for general, 75 Revenues capital budgeting example of, 515–517 income tax as government source of, 425 U.S policy on tax neutrality for raising, 422 value-added tax as major source of, 427 Revocable letter of credit, 456 Revolving underwriting facilities (rufs), euronotes, 404 Rewards-based crowdfunding, 21 Rho value, options, 198–199 Ricardo, David, 11 Risk basis, 291 counterparty, 183, 185, 230 currency see Currency risk currency hedging reducing see Hedging 12/06/15 10:19 pm www.downloadslide.net Index equity risk premiums, 366–367 of exporting vs production abroad, 484 financial globalization, 3–4 foreign exchange see Foreign exchange risk interest rate see Interest rate risk measuring portfolio, 526–527 of noncompletion in international trade, 453–455 Novo case of financial, 377 operational, 91, 92 over-the-counter market options, 185 privately held vs publicly traded firms, 94–95 project financing, 528–529 reducing international portfolio, 361–362 roll-over (credit), 214, 218 shareholder wealth maximization model and, 91–92 stakeholder capitalism model and, 92 systematic, 91, 360, 372–373 tolerance, 286–287 of uncovered interest arbitrage, 161–162, 164 Risk-free rate of interest (k U S$), cost of debt, 211–212 Risk-sharing agreements, 345–346 RMB see Chinese renminbi (RMB) Roll-over (credit) risk, 214, 218 Royalties, withholding taxes, 425 Royalty Pharma case, 535–539 Ruble, Russian ruble roulette minicase, 263–266 Rufs (revolving underwriting facilities), euronotes, 404 Rules arbitrage, 160–161 currency market intervention, 250 gold standard (1876–1913), 29–30 Rupiah (IDR or Rp) see Cemex entering Indonesia case Russia as BRIC country, ruble roulette case, 263–266 S Salotto buono, shareholding and end of, 103 Samurai bonds, 406 Sarbanes-Oxley Act (SOX) corporate governance reform and, 105 decline of share listings in U.S and, 98 Z03_MOFF9872_14_SE_IDX.indd 585 Scale, foreign direct investment, 479 SCM (Stakeholder capitalism model), 92–93 Scope, foreign direct investment, 479 Scorecard, stakeholder capitalism model, 92–93 SDRs (Special Drawing Rights), 32 Seasoned offerings, raising equity capital, 391 SEC (Securities and Exchange Commission), 101, 406–407 SEC Rule 144A, private equity placement, 399 SEC Rule 415, growth of EMTN market, 405 Section 482, U.S IRS, 433 Securities as assets of global finance, 4–5 foreign exchange risks of portfolio, 361–363 globalization of markets for, 371, 379 interest rate risk of marketable, 217 measuring cost of debt from, 361 trading in interbank market, turnover tax on, 427 Securities and Exchange Commission (SEC), 101, 406–407 Securitization, of export receivables, 464–465 Seigniorage, and dollarization, 43–44 Selective hedging in disequilibrium, 277 as speculation, 290 Self-fulfilling prophecies, blocked funds, 498–499 Selfridges Provincial Stores Limited, ADRs, 393 Self-sustaining foreign entity, 314–315, 317–318 Selling short, 30 Semen Indonesia see Cemex entering Indonesia case September 11, 2001 negative outlook after, 246 predicting global-specific risk, 492 supply chain interruptions after, 503–504 Serial defaulters, 231 Services strategic alliances formed for, 487 Subpart F income from financial, 428 Services trade, current account, 60–61 Settlement price, futures, 220 Shareholder wealth maximization (SWM) model, 91–93 Shareholders corporate governance and, 99, 105 585 in cross-border acquisitions, 532 from emerging markets, 488–490 maximizing wealth of, 91 operational goals maximizing returns of, 93–96 ownership vs management of, 90 responses to dissatisfaction of, 107 shareholder wealth maximization model, 91–92 stakeholder capitalism model and, 92–93 U.S taxes on foreign source income and, 428–429 Shares global registered shares (GRS), 398–399 promoting prices of, 401–402 Shelf registration, EMTN market, 405 Shipping, Subpart F income from, 428 Short positions, futures, 183, 221 Short run cash flows, operating exposure, 335 Short-term value maximization, SWM model, 91–92 Shuhei, Toyoda, 350–352 SIBOR (Singapore Interbank Offered Rate), 210 Sight drafts defined, 453 time drafts vs., 459 Signature clause, Sarbanes-Oxley Act, 105 “Sing dollar” (Singapore dollar), 131 Singapore Interbank Offered Rate (SIBOR), 210 Singer, Paul, 234 Singular projects, financing, 528 Smith, Adam, 11 Snifs (standby note issuance facilities), euronotes, 404 Soft peg regimes, 34–36 Sole proprietorship businesses, 88 Soros, George, 255–256 Source (or territorial) international tax system, 423–424 Sourcing, hedging interruptions in political risk with, 504 South Africa, as MINT country, South Korean won and KiKos, MiniCase, 203–208 Sovereign debt Argentina and vulture funds case, 231–235 overview or, 214–216 Sovereign spreads, 216–217 12/06/15 10:19 pm www.downloadslide.net 586 Index SOX (Sarbanes-Oxley Act) corporate governance reform and, 105 decline of share listings in U.S and, 98 Special dispensation, for moving blocked funds, 498 Special Drawing Rights (SDRs), 32 Specialists, role of stock exchange, 401 Speculation Asian Crisis and, 255–256 asset approach to, 242 definition of, 200 financial derivatives for, 181 foreign exchange crises caused by, 246 futures contracts for, 184 interest rate futures for, 221 selling short as technique of, 30 trading nondeliverable forwards for, 125 in uncovered interest arbitrage, 156 Speculative grade borrowers, cost of debt, 212–213 Speculators, foreign exchange, 122–123 Sponsored ADR program, 396 Spot against forward, swap transaction, 125 Spot rate(s) absolute purchasing power parity and, 148 buyer of call options, 187–188 buyer of put options, 190 covered interest arbitrage and, 159–161 foreign exchange market and, 136–137 forward rate as predictor of future, 164–165 forward rate calculation using, 156–158 hedging foreign exchange exposure, 295 interest rate parity and, 157–159 international Fisher effect and, 156 Japanese yen carry-trade and, 168–169 option pricing/valuation, 192–193 pricing sensitivity of currency options (delta), 194–195 relative purchasing power parity and, 151 risk-sharing at Harley-Davidson, 346 writer of call options, 188–189 writer of put options, 191–192 Spot transactions, foreign exchange market, 123–124, 126 Z03_MOFF9872_14_SE_IDX.indd 586 Stakeholder capitalism model (SCM), 92–93 Stakeholders, corporate governance and, 99, 100 standby note issuance facilities (snifs), euronotes, 404 State-owned enterprises (SOEs) large-scale privatization programs of, 392 public trading of, 89 separation of ownership from management in, 90 Static operating exposure, 332–333 Statoil of Norway’s acquisition of Esso of Sweden, 534 Statutory tax rates, decline of, 425 Stock exchanges, 401 Straight fixed-rate issue, eurobonds, 406 Strategic alliances foreign direct investment via, 487 risks of exporting vs production abroad, 484 Strategic alliances, international portfolio investors, 372 Strategic exposure see Operating exposure Strategic management, of operating exposure, 341–344 Strategic Portfolio Theory, 505–507 Strategy hedging transaction exposure, 286 motives of MNEs, 14–15 sourcing capital globally, 385–386 Street markets, North Korean, 150 Strike rate(s) buyer of call options, 187–188 option premiums and alternative, 199 over-the-counter market options, 186 spot rate sensitivity, 194–195 writer of call options, 189 Subpart F income, taxation Apple’s global iTax strategy, 444 overview of, 427–428 Substantial business presence, corporate inversion, 439–440 Supply chains cross-border integration of, 503 terrorism and interruptions to, 503–504 Surpluses capital controls correcting BOP, 75 China’s twin, 67–68 as risk of financial globalization, Sustainability, corporate, 14, 106–107 Swap rates, forward quotations, 136–137 Swaps counterparty risk and, 230 credit, 347–348 cross-currency see Cross-currency swaps currency, 222 in foreign exchange market, 125–126 interest rate, 220, 222–226 Sweden Atlas Copco, 399 maintaining individual currency, 40 planned directed equity issue of PA Resources, 393 School of economists, 483–484 Statoil of Norway’s acquisition of Esso of, 534 Swiss franc, 6–7 SWM (shareholder wealth maximization) model, 91–93 Symbols see Currency symbols Symmetry, hedge, 291 Syndicated bank credits, 404 Syndications international debt markets/ instruments, 403 raising debt globally with, 404 Synthetic forwards, constructing with options, 306–307 Systematic risk cost of capital for MNEs vs domestic firms, 372–373 measuring for cost of equity, 360 shareholder wealth maximization model, 91 T Taleb, Nassim Nicholas, 506–507 Taper Program, U.S Federal Reserve, 250 Tariff barriers, host country protectionism of, 501 T/As (Trade acceptances), 459, 464 Tax credits cross-crediting foreign, 434–435 naked inversion and, 439 overview of, 429–430 Tax deferral in Apple’s global iTax strategy, 444 overview of, 424 Subpart F income and, 427–428 tax incentives for repatriating profits, 429 tax management and, 430 via International Offshore Financial centers, 435–437 Tax equity, tax neutrality vs., 423 12/06/15 10:19 pm www.downloadslide.net Index Tax evasion MNE tax management to reduce, 429 via International Offshore Financial centers, 437 Tax havens defined, 424 international offshore financial centers, 435–437 Subpart F income and, 427 Tax management, MNE allocation of debt and earnings stripping, 429 Apple’s global iTax strategy, 441–445 check-the-box and hybrid entities, 435 corporate inversion, 439–440 corporate/indirect tax rates for selected countries, 426 cross-crediting, 434–435 deferral, 430 foreign tax credits, 429–430 Google and profit repositioning, 437–439 introduction to, 421–422 investment agreements with host country, 494 offshore profits and dividend repatriation, 431 overview of, 429 review, 440, 445–449 tax havens/international offshore financial centers, 435–437 tax principles see Tax principles transfer pricing, 431–434 Tax morality, 422 Tax neutrality, 422–423 Tax principles controlled foreign corporations, 427–429 national tax environments, 423–424 overview of, 421–422 tax morality, 422 tax neutrality, 422–423 tax treaties, 424–425 types of taxes, 425–427 Tax Reform Act of 1986, 427 Tax treaties, 424–425 Taxes eurobonds offering anonymity for, 407 in Novo case, 376–377 optimal financial structure and, 386 Technical analysis theories example of, 245 of exchange rate, 245 forecasting with, 259–260 Z03_MOFF9872_14_SE_IDX.indd 587 Technology controls to minimize political risk, 495 in foreign direct investment, 479 in foreign direct investment via joint venture, 486 risks to intellectual property rights, 500 Telefonos de Mexico, 392 Temporal method, translation balance sheet hedge, 324 example of, 321–322 in international practices, 317–318 overview of, 316 Tenor, defined, 459 Tequila effect, 255 Terminal value (TV), 512, 520 Territorial (or source) international tax system, 423–424 Terrorism foreign direct investments risking, 503–504 as global-specific risk, 503–504 predicting global-specific risk, 492–493 The Fragile Five, BIITS, The Wealth of Nations (Smith), 11 Theoretical determinants, of exchange rate, 242–247 Theory of comparative advantage, 11–13 Theta, 195–196, 199 Thin capitalization, defined, 429 Third parties, financing large projects, 528–529 Thomas, Patrick, 108–112 Time drafts, 459, 460–461 Time of day trading, foreign exchange market, 119–120 Time to maturity, value and deterioration of options, 195–196 Time value, options, 193, 194–195 Timing hedge, 291–292 rules for effective intervention, 250 Total shareholder return (TSR), 488 Toyota’s European operating exposure, Mini-Case, 350–352 Trade capital controls limiting currency for, 249 foreign exchange market functions for, 119 foreign exchange market structure for, 119–123 liquidity of stock exchanges, 401 shift to electronic trading, 401 587 Trade acceptances (T/As), 459, 464 Trade balances, and exchange rates, 70–72 Trade draft, 458 Trade finance see International trade finance Trademarks, minimizing political risk, 496 Trade-offs, of emerging markets, 488–489 Trade-Related Aspects of Intellectual Property Rights (TRIPS), 500 Tranches, for euroequity privatization issues, 392 Transaction exposure China Noah Corporation case, 292–298 complex option hedges see Option hedges credit crisis of 2009 and, 289–290 cross-border acquisitions, 534 defined, 274, 278 hedging, 275–278, 290–292 life span of, 278 measurement of, 278–280 measuring operating exposure of firm via, 332–333 operating exposure vs., 275, 331 overview of, 274 review, 292, 298–304 risk management in practice, 289–290 translation exposure vs., 275 types of foreign exchange exposure, 274–275 Transaction exposure, managing of account payable, 287–289 comparing alternatives, 285–286 with forward market hedge, 281–282 forward rates and cost of hedging, 287 with money market hedge, 282–284 with options market hedge, 284–285 strategy choice and outcome, 286 with unhedged position, 280–281 Transaction fee, in remittance costs, 79 Transactions BOP, 58 economic international, 59 foreign exchange, 118, 123–126 Trans-channel eras of currency shift, 343 Transfer pricing effect on joint-venture partners, 434 fund positioning effect, 432 income tax effect, 432–433 12/06/15 10:19 pm www.downloadslide.net 588 Index Transfer pricing (Continued) investment agreements with host/ MNEs, 493 of joint venture vs wholly owned subsidiary, 487 managerial incentives and evaluation, 433–434 overview of, 431 Transfer risk, foreign direct investment, 496–499 Translation exposure current rate method of, 315–316 defined, 275 example of, 318–322 foreign subsidiary valuation, 322 functional currency, 315 international practices of, 317 managing, 322–324 McDonald’s, Hoover Hedges, and cross-currency swaps Mini-Case, 325–327 overview of, 313–314 review, 325, 327–330 subsidiary characterization, 314–315 temporal method of, 316 U.S procedures of, 316–317 Transnational firms, defined, 484 Transparency, and corporate governance, 99, 103 Transportation, and political risk, 495, 504 Treasuries, foreign exchange trading by, 123 Triffin Dilemma, and Chinese RMB, 47–48 Trilemma of international finance see Impossible trinity TSR (Total shareholder return), 488 Turkey lira crisis of 2014, 249–250 as MINT country, Turnover tax, 427 TV (terminal value), 512, 520 Twin surpluses, of China, 67–68 Two-market currency development, Chinese renminbi, 45–46 U Unaffiliated known, import/export relationship, 451–452 Unaffiliated unknown, import/export relationship, 451–452 Unbiased prediction, of future spot rate, 164–165 Uncovered interest arbitrage (UIA) in global markets today, 164 Japanese yen carry-trade and, 167–168 overview of, 161–162 Z03_MOFF9872_14_SE_IDX.indd 588 Undervaluation exchange rate indices determining, 152–153 measuring with law of one price, 149–150 Underwritten facilities, euronote market, 404 Undistributed profits, taxes on, 427 Unexpected cash flows, vs expected, 333–334 Unhedged position, 280–281, 287 Unit (base) currency, exchange rate quotes, 129–130 United Kingdom corporate governance reform in, 105–106 maintaining individual currency, 40 ownership vs management in, 90 shareholder wealth maximization model of, 91–92 size of foreign exchange market in, 128 United States corporate governance reform in, 105–106 decline of share listings in, 98–99 export credit insurance in, 462 failures in corporate governance, 104 foreign market exchange regulator, 123 ownership vs.management in, 90 shareholder wealth maximization model of, 91–92 size of foreign exchange market in, 128 taxation on foreign-source income, 422–423, 428–429 translation procedures in, 316–317 worldwide approach to taxes of, 423 Unrelated exports, moving blocked funds with, 498 Unsecured promissory notes, financing trade with, 466 Unsponsored ADR program, 396 Unwinding currency swaps, 228–229 U.S dollar devaluation in 1934 of, 30 dominating global currency market, 36 emerging markets and dollarization, 42–43 exchange rate conventions and, fixed exchange rates from 1945–1973 and, 32 as focus of currency trading since 1940s, 8–9 international monetary system based on, 30–31 JPMorgan Chase forecast of euro and, 260 nondeliverable forwards in foreign exchange using, 125–126 run-up and peak in 1985 of, 32–33 sovereign spread and, 216 symbol/ISO code for, 129 technical analysis of exchange rate with JPY, 245 U.S dollars per euro, quotation, 131 U.S person, defined, 428 U.S Treasury Bond Futures, 220, 230 V Valley of Death, capital lifecycle, 20 Valuation cross-border acquisitions stage, 530–531 Elan and Royalty Pharma debate, 536–538 foreign subsidiary, 322 market, 537–539 measuring operating exposure, 335–341 Value chain, trade financing, 451 Value date, spot transactions, 124 Value firms, 93–94 Value maximization, SWM model, 91, 92–93 Value-added tax, 425–426 Venezuela bolivar black market case, 138–141 capital controls forcing devaluation of business in, 525 Ford Motor Company and devaluation in, 334 Venture capital funds, private equity funds vs., 400 Venture capitalists (VCs), capital lifecycle, 20 Visibility, with foreign equity listings, 402 Volatility, sensitivity to (lambda) credit crisis of 2009 and option, 289–290 as option premium component, 199 options, 196–198 overview of, 196–198 smoothing with risk-sharing agreements, 346 Volume vs margin, global challengers, 488 Vulture funds, Argentina and, 231–235 12/06/15 10:19 pm www.downloadslide.net Index W War foreign direct investment risk of, 503–504 global-specific risk of, 503–504 OPIC foreign investment insurance for, 494 Weighted average cost of capital (WACC) calculating, 360 effects of market liquidity/ segmentation, 369–371 link between cost/availability of capital, 368 measuring cost of debt, 361 minimizing for risk/capital budget, 418 for MNEs vs domestic firms, 373–375 in Novo case, 378–379 optimal financial structure and, 386–387 Z03_MOFF9872_14_SE_IDX.indd 589 in parent viewpoint capital budget, 521 Welch, Jack, 532 What, of global depositary receipts, 397 Where, of global depositary receipts, 398 White, Harry D., 31 Who, of global depositary receipts, 397 Withholding tax, 425 World Bank, 30 World portfolio, global portfolio vs., 366 Worldwide international tax system, 423 WW II, international monetary system in, 29–30 589 Z Zero-cost ratio option, currency risk management, 309–311 Zero-cost tunnel, currency risk management, 308–309 Zero-premium option products, currency risk management average rate options, 312 calendar spreads, 312 overview of, 308 participating forward, 309–311 range forward (option collar), 308–309 ratio spreads, 311 Y Yankee bonds, 406 Yen carry-trade, 161–162, 167–170 Yield curve, cost of debt, 213–214 YPF Sociedad Anónima, Argentina, 385 12/06/15 10:19 pm www.downloadslide.net This page intentionally left blank A01_MOFF9872_14_SE_FM.indd 20 12/06/15 10:02 pm Z04_MOFF9872_14_SE_BEP.indd www.downloadslide.net Currencies of the World ISO-4217 Code Country Currency AFN China Chinese renminbi Albanian lek ALL Christmas Island see Australia Algeria Algerian dinar DZD Cocos (Keeling) Islands see Australia American Samoa see United States Colombia Andorra see Spain and France Comoros Angola Angolan kwanza AOA Anguilla East Caribbean dollar XCD EC$ Antigua and Barbuda East Caribbean dollar XCD EC$ Argentina Argentine peso Armenia Armenian dram Aruba Aruban florin AWG Australia Australian dollar Austria Country Currency Afghanistan Afghan afghani Albania Symbol ISO-4217 Code Symbol CNY ¥ Colombian peso COP Col$ Comorian franc KMF Congo Central African CFA franc XAF CFA Congo, Democratic Republic Congolese franc CDF F Cook Islands see New Zealand ARS Costa Rica Costa Rican colon CRC C AMD Côte d’Ivoire West African CFA franc XOF CFA f Croatia Croatian kuna HRK kn AUD $ Cuba Cuban peso CUC $ European euro EUR € Cyprus European euro EUR € Azerbaijan Azerbaijani manat AZN Czech Republic Czech koruna CZK Kcˇ Bahamas Bahamian dollar BSD Denmark Danish krone DKK Kr Bahrain Bahraini dinar BHD Djibouti Djiboutian franc DJF Fdj Bangladesh Bangladeshi taka BDT Dominica East Caribbean dollar XCD EC$ Barbados Barbadian dollar BBD Bds$ Dominican Republic Dominican peso DOP RD$ Belarus Belarusian ruble BYR Br Dronning Maud Land see Norway Belgium European euro EUR € East Timor see Timor-Leste Belize Belize dollar BZD BZ$ Ecuador uses the U.S Dollar Benin West African CFA franc XOF CFA Egypt Egyptian pound EGP £ Bermuda Bermudian dollar BMD BD$ El Salvador uses the U.S Dollar Bhutan Bhutanese ngultrum BTN Nu Equatorial Guinea Central African CFA franc GQE CFA Bolivia Bolivian boliviano BOB Bs Eritrea Eritrean nakfa ERN Nfa Bosnia-Herzegovina Bosnia and Herzegovina konvertibilna marka BAM KM Estonia Estonian kroon EEK KR Botswana Botswana pula BWP P Ethiopia Ethiopian birr ETB Br Brazil Brazilian real BRL R$ Faeroe Islands (Føroyar) see Denmark Falkland Islands Falkland Islands pound FKP £ B$ Fiji Fijian dollar FJD FJ$ Finland European euro EUR € France European euro EUR € French Guiana see France French Polynesia CFP franc XPF F Gabon Central African CFA franc XAF CFA D B$ British Indian Ocean Territory see United Kingdom Brunei Brunei dollar BND Bulgaria Bulgarian lev BGN Burkina Faso West African CFA franc XOF Burma see Myanmar Burundi Burundi franc Cambodia Cambodian riel KHR Cameroon Central African CFA franc XAF CFA Gambia Gambian dalasi GMD Canada Canadian dollar CAD $ Georgia Georgian lari GEL BIF CFA FBu Germany European euro EUR Cape Verde Cape Verdean escudo CVE Esc Ghana Ghanaian cedi GHS Cayman Islands Cayman Islands dollar KYD KY$ Gibraltar Gibraltar pound GIP £ Central African Republic Central African CFA franc XAF CFA Great Britain see United Kingdom Chad Central African CFA franc XAF CFA Greece European euro EUR € Chile Chilean peso CLP $ Greenland see Denmark Canton and Enderbury Islands see Kiribati € 12/06/15 10:18 pm Z04_MOFF9872_14_SE_BEP.indd www.downloadslide.net Currencies of the World (continued) ISO-4217 Code ISO-4217 Code 12/06/15 10:18 pm Country Currency Grenada East Caribbean dollar Guadeloupe Guam Guatemala Guatemalan quetzal Guernsey see United Kingdom Guinea-Bissau West African CFA franc XOF CFA Madagascar Malagasy ariary MGA FMG Guinea Guinean franc GNF FG Malawi Malawian kwacha MWK MK Guyana Guyanese dollar GYD GY$ Malaysia Malaysian ringgit MYR RM Haiti Haitian gourde HTG G Maldives Maldivian rufiyaa MVR Rf Heard and McDonald Islands see Australia Mali West African CFA franc XOF CFA Honduras Honduran lempira HNL L Malta European Euro EUR € Hong Kong Hong Kong dollar HKD HK$ Martinique see France Hungary Hungarian forint HUF Ft Mauritania Mauritanian ouguiya MRO UM Iceland Icelandic króna ISK kr Mauritius Mauritian rupee MUR Rs India Indian rupee INR Mayotte see France Indonesia Indonesian rupiah IDR Rp Micronesia see United States International Monetary Fund Special Drawing Rights XDR SDR Midway Islands see United States Iran Iranian rial IRR Mexico Mexican peso MXN $ Iraq Iraqi dinar IQD Moldova Moldovan leu MDL Ireland European euro EUR Monaco see France Isle of Man see United Kingdom Mongolia Mongolian tugrik Israel Israeli new sheqel Montenegro see Italy Italy European euro Montserrat Ivory Coast see Côte d’Ivoire Morocco Jamaica Jamaican dollar JMD J$ Mozambique Mozambican metical MZM MTn Japan Japanese yen JPY ¥ Myanmar Myanma kyat MMK K Jersey see United Kingdom Nauru see Australia Johnston Island see United States Namibia Namibian dollar NAD N$ Jordan Jordanian dinar Nepal Nepalese rupee NPR NRs Kampuchea see Cambodia Netherlands Antilles Netherlands Antillean gulden ANG NAf Kazakhstan Kazakhstani tenge KZT T Netherlands European euro EUR € Kenya Kenyan shilling KES KSh New Caledonia CFP franc XPF F Kiribati see Australia New Zealand New Zealand dollar NZD NZ$ Korea, North North Korean won KPW W Nicaragua Nicaraguan córdoba NIO C$ Korea, South South Korean won KRW W Niger West African CFA franc XOF CFA Kuwait Kuwaiti dinar KWD Nigeria Nigerian naira NGN N Kyrgyzstan Kyrgyzstani som KGS Niue see New Zealand Laos Lao kip LAK KN Norfolk Island see Australia Latvia Latvian lats LVL Ls Northern Mariana Islands see United States Lebanon Lebanese lira LBP Norway Norwegian krone NOK kr Lesotho Lesotho loti LSL M Oman Omani rial OMR Liberia Liberian dollar LRD L$ Pakistan Pakistani rupee PKR Libya Libyan dinar LYD LD Palau see United States Symbol Country Currency EC$ Liechtenstein uses the Swiss Franc see France Lithuania Lithuanian litas LTL Lt see United States Luxembourg European euro EUR € Macau Macanese pataca MOP P XCD GTQ Q Macedonia (Former Yug Rep.) Macedonian denar € ILS EUR € JOD Symbol MKD MNT T East Caribbean dollar XCD EC$ Moroccan dirham MAD Rs Z04_MOFF9872_14_SE_BEP.indd www.downloadslide.net Currencies of the World (continued) ISO-4217 Code ISO-4217 Code Symbol Country Currency B./ Swaziland Swazi lilangeni SZL E Sweden Swedish krona SEK kr Switzerland Swiss franc CHF Fr Syria Syrian pound SYP S/ Tahiti see French Polynesia P Taiwan New Taiwan dollar TWD Tajikistan Tajikistani somoni TJS Tanzania Tanzanian shilling TZS Thailand Thai baht THB B Timor-Leste uses the U.S dollar Togo West African CFA franc XOF CFA Trinidad and Tobago Trinidad and Tobago dollar TTD TT$ L Tunisia Tunisian dinar TND DT RUB R Turkey Turkish new lira TRY YTL RWF RF Turkmenistan Turkmen manat TMM m see Western Samoa Turks and Caicos Islands see United States Samoa (America) see United States Tuvalu see Australia San Marino see Italy Uganda USh São Tomé and Príncipe São Tomé and Príncipe dobra Saudi Arabia Sénégal Country Currency Panama Panamanian balboa Panama Canal Zone see United States Papua New Guinea Papua New Guinean kina PGK Paraguay Paraguayan guarani PYG Peru Peruvian nuevo sol PEN Philippines Philippine peso PHP Pitcairn Island see New Zealand Poland Polish zloty PLN Portugal European euro EUR Puerto Rico see United States Qatar Qatari riyal Reunion see France Romania Romanian leu RON Russia Russian ruble Rwanda Rwandan franc Samoa (Western) PAB QAR K € QR Symbol NT$ Ugandan shilling UGX STD Db Ukraine Ukrainian hryvnia UAH Saudi riyal SAR SR United Arab Emirates UAE dirham AED West African CFA franc XOF CFA United Kingdom British pound GBP £ Serbia Serbian dinar RSD din United States of America United States dollar USD US$ Seychelles Seychellois rupee SCR SR Upper Volta see Burkina Faso Sierra Leone Sierra Leonean leone SLL Le Uruguay Uruguayan peso UYU $U Singapore Singapore dollar SGD S$ Uzbekistan Uzbekistani som UZS Slovakia European Euro EUR € Vanuatu Vanuatu vatu VUV VT Slovenia European euro EUR € Vatican see Italy Solomon Islands Solomon Islands dollar SBD SI$ Venezuela Venezuelan bolivar VEB Bs Somalia Somali shilling SOS Sh Vietnam Vietnamese dong VND d South Africa South African rand ZAR R Virgin Islands see United States Spain European euro EUR € Wake Island see United States Sri Lanka Sri Lankan rupee LKR Rs Wallis and Futuna Islands CFP franc XPF F St Helena Saint Helena pound SHP £ Western Sahara see Spain, Mauritania, and Morocco St Kitts and Nevis East Caribbean dollar XCD EC$ Western Samoa Samoan tala WST WS$ St Lucia East Caribbean dollar XCD EC$ Yemen Yemeni rial YER St Vincent and the Grenadines East Caribbean dollar XCD EC$ Zaïre see Congo, Democratic Republic Sudan Sudanese pound SDG Zambia Zambian kwacha ZMK ZK Suriname Surinamese dollar SRD Zimbabwe Zimbabwean dollar ZWD Z$ $ Svalbard and Jan Mayen Islands see Norway 12/06/15 10:18 pm © 2011 by Werner Antweiler, University of British Columbia All rights reserved The Pacific Exchange Rate Service is located in Vancouver, Canada A continuously updated version of this table can be found on the Web at http://pacific.commerce.ubc.ca/xr/currency_table.html This Web site was accessed in May 2011 to create the table shown here ... 11:13 pm Multinational Business Finance F o u r t e e n t h E D I T I ON A01_MOFF9872_14_SE_FM.indd 12/06/15 10:02 pm The Pearson Series in Finance Berk/DeMarzo Corporate Finance* Corporate Finance: ... Introduction to Risk Management and Insurance Eakins/McNally Corporate Finance Online* Eiteman/ Stonehill /Moffett Multinational Business Finance* Fabozzi Bond Markets: Analysis and Strategies Fabozzi/Modigliani/Jones... Audience Multinational Business Finance, Fourteenth Edition, is aimed at university-level courses in international financial management, international business finance, international finance,
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