www.freebookslides.com International Financial Management Eighth Edition The McGraw-Hill/Irwin Series in Finance, Insurance, and Real Estate Stephen A Ross Franco Modigliani Professor of Finance and Economics Sloan School of Management Massachusetts Institute of Technology Consulting Editor FINANCIAL MANAGEMENT Block, Hirt, and Danielsen Foundations of Financial Management Sixteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Twelfth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Second Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Eighth Edition Brooks FinGame Online 5.0 Bruner Case Studies in Finance: Managing for Corporate Value Creation Eighth Edition Cornett, Adair, and Nofsinger Finance: Applications and Theory Fourth Edition Cornett, Adair, and Nofsinger Finance: M Book Third Edition DeMello Cases in Finance Third Edition Grinblatt (editor) Stephen A Ross, Mentor: Influence through Generations Grinblatt and 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Edition Kapoor, Dlabay, Hughes, and Hart Personal Finance Eleventh Edition Walker and Walker Personal Finance: Building Your Future Second Edition International Financial Management Eighth Edition Cheol S Eun Georgia Institute of Technology Bruce G Resnick Wake Forest University INTERNATIONAL FINANCIAL MANAGEMENT, EIGHTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2015, 2012, and 2009 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper LWI 21 20 19 18 17 ISBN 978-1-259-71778-9 MHID 1-259-71778-X Chief Product Officer, SVP Products & Markets: G Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Managing Director: James Heine Brand Manager: Chuck Synovec Product Developer: Noelle Bathurst Marketing Manager: Melissa Caughlin Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Melissa M Leick, Bruce Gin, Karen Jozefowicz Buyer: Jennifer Pickel Design: Studio Montage, Inc Content Licensing Specialists: Beth Thole Cover Image: © ojal/Shutterstock Compositor: MPS Limited Printer: LSC Communications All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Eun, Cheol S., author | Resnick, Bruce G., author International financial management / Cheol S Eun, Georgia Institute of Technology, Bruce G Resnick, Wake Forest University Eighth Edition | Dubuque : McGraw-Hill Education, [2017] | Revised edition of the authors’ International financial management, [2015] LCCN 2016051732 | ISBN 9781259717789 (alk paper) LCSH: International finance | International business enterprises—Finance | Foreign exchange | Financial institutions, International LCC HG3881 E655 2017 | DDC 658.15/99—dc23 LC record available at https://lccn.loc.gov/2016051732 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered To Elizabeth C.S.E To Donna B.G.R About the Authors Cheol S Eun, Georgia Institute of Technology Cheol S Eun (Ph.D., NYU) is the Thomas R Williams Chair and Professor of Finance at the Scheller College of Business, Georgia Institute of Technology Before joining Georgia Tech, he taught at the University of Minnesota and the University of Maryland He also taught at the Wharton School of the University of Pennsylvania, Korea Advanced Institute of Science and Technology (KAIST), Singapore Management University, and the Esslingen University of Technology (Germany) as a visiting professor He has published extensively on international finance issues in such major journals as the Journal of Finance, Journal of Financial Economics, JFQA, Journal of Banking and Finance, Journal of International Money and Finance, Management Science, and Oxford Economic Papers Also, he has served on the editorial boards of the Journal of Banking and Finance, Journal of Financial Research, Journal of International Business Studies, and European Financial Management His research is widely quoted and referenced in various scholarly articles and textbooks in the United States as well as abroad Dr Eun is the founding chair of the Fortis/Georgia Tech Conference on International Finance The key objectives of the conference are to promote research on international finance and provide a forum for interactions among academics, practitioners, and regulators who are interested in vital current issues of international finance Dr Eun has taught a variety of courses at the undergraduate, graduate, and executive levels, and was the winner of the Krowe Teaching Excellence Award at the University of Maryland He also has served as a consultant to many national and international organizations, including the World Bank, Apex Capital, and the Korean Development Institute, advising on issues relating to capital market liberalization, global capital raising, international investment, and exchange risk management In addition, he has been a frequent speaker at academic and professional meetings held throughout the world vi Bruce G Resnick, Wake Forest University Bruce G Resnick is the Joseph M Bryan Jr Professor of Banking and Finance at the Wake Forest University School of Business in Winston-Salem, North Carolina He has a D.B.A (1979) in finance from Indiana University Additionally, he has an M.B.A from the University of Colorado and a B.B.A from the University of Wisconsin at Oshkosh Prior to coming to Wake Forest, he taught at Indiana University for ten years, the University of Minnesota for five years, and California State University for two years He has also taught as a visiting professor at Bond University, Gold Coast, Queensland, Australia, and at the Helsinki School of Economics and Business Administration in Finland Additionally, he served as the Indiana University resident director at the Center for European Studies at Maastricht University, the Netherlands He also served as an external examiner to the Business Administration Department of Singapore Polytechnic and as the faculty advisor on Wake Forest University study trips to Japan, China, and Hong Kong Dr Resnick teaches M.B.A courses at Wake Forest University He specializes in the areas of investments, portfolio management, and international financial management Dr Resnick’s research interests include market efficiency studies of options and financial futures markets and empirical tests of asset pricing models A major interest has been the optimal design of internationally diversified portfolios constructed to control for parameter uncertainty and exchange rate risk In recent years, he has focused on information transmission in the world money markets and yield spread comparisons of domestic and international bonds His research articles have been published in most of the major academic journals in finance His research is widely referenced by other researchers and textbook authors He is an associate editor for the Emerging Markets Review, Journal of Economics and Business, and the Journal of Multinational Financial Management Preface Our Reason for Writing this Textbook Both of us have been teaching international financial management to undergraduates and M.B.A students at Georgia Institute of Technology, Wake Forest University, and at other universities we have visited for three decades During this time period, we conducted many research studies, published in major finance and statistics journals, concerning the operation of international financial markets As one might imagine, in doing this we put together an extensive set of teaching materials that we used successfully in the classroom As the years went by, we individually relied more on our own teaching materials and notes and less on any one of the major existing textbooks in international finance (most of which we tried at some point) As you may be aware, the scope and content of international finance have been fast evolving due to deregulation of financial markets, product innovations, and technological advancements As capital markets of the world are becoming more integrated, a solid understanding of international finance has become essential for astute corporate decision making Reflecting the growing importance of international finance as a discipline, we have seen a sharp increase in the demand for experts in the area in both the corporate and academic worlds In writing International Financial Management, Eighth Edition, our goal was to provide well-organized, comprehensive, and up-to-date coverage of the topics that take advantage of our many years of teaching and research in this area We hope the text is challenging to students This does not mean that it lacks readability The text discussion is written so that a self-contained treatment of each subject is presented in a user-friendly fashion The text is intended for use at both the advanced undergraduate and M.B.A levels The Underlying Philosophy International Financial Management, Eighth Edition, like the first seven editions, is written based on two tenets: emphasis on the basics and emphasis on a managerial perspective Emphasis on the Basics We believe that any subject is better learned if one first is well grounded in the basics Consequently, we initially devote several chapters to the fundamental concepts of international finance After these are learned, the remaining material flows easily from them We always bring the reader back, as the more advanced topics are developed, to their relationship to the fundamentals By doing this, we believe students will be left with a framework for analysis that will serve them well when they need to apply this material in their careers in the years ahead We believe this approach has produced a successfuI textbook: International Financial Management is used in many of the best business schools in the world Various editions of the text have been translated into Spanish and two dialects of Chinese There is a global edition In addition, local co-authors have assisted in preparing a Canadian, Malaysian, Indonesian, and Indian adaptations vii viii P RE FA C E Eighth Edition Organization International Financial Management, Eighth Edition, has been completely updated All data tables and statistics are the most current available when the text went to press Additionally, the chapters incorporate several new International Finance in Practice boxes that contain real-world illustrations of chapter topics and concepts In the margins below, we highlight specific changes in the Eighth Edition This part lays the macroeconomic foundation for all the topics to follow Recent economic developments such as the global financial crisis and sovereign debt crisis of Europe, and Brexit Updated coverage of monetary developments, including the euro zone crisis Part ONE Foundations of International Financial Management Globalization and the Multinational Firm International Monetary System 27 Balance of Payments 62 Corporate Governance Around the World 82 Updated balance-of-payments statistics Review of corporate governance systems in different countries, the Dodd-Frank Act, and managerial implications This part describes the market for foreign exchange and introduces currency derivatives that can be used to manage foreign exchange exposure Part TWO The Foreign Exchange Market, Exchange Rate Determination, and Currency Derivatives 110 Fully updated market data and examples Integrated coverage of key parity conditions and currency carry trade Fully updated market data and examples This part describes the various types of foreign exchange risk and discusses methods available for risk management Systematic coverage of foreign currency transaction exposure management and a new case application Conceptual and managerial analysis of economic exposure to currency risk The Market for Foreign Exchange 112 International Parity Relationships and Forecasting Foreign Exchange Rates 140 Futures and Options on Foreign Exchange 173 Part THREE Foreign Exchange Exposure and Management 196 Management of Transaction Exposure 198 Management of Economic Exposure 225 10 Management of Translation Exposure 244 ix P R E F A C E A Managerial Perspective The text presentation never loses sight of the fact that it is teaching students how to make managerial decisions International Financial Management, Eighth Edition, is founded in the belief that the fundamental job of the financial manager is to maximize shareholder wealth This belief permeates the decision-making process we present from cover to cover To reinforce the managerial perspective, we provide numerous “real-world” stories whenever appropriate Part FOUR World Financial Markets and Institutions 262 11 International Banking and Money Market 264 12 International Bond Market 304 13 International Equity Markets 323 14 Interest Rate and Currency Swaps 347 15 International Portfolio Investment 365 Part FIVE Financial Management of the Multinational Firm 402 This part provides a thorough discussion of international financial institutions, assets, and marketplaces Fully updated market data and statistics Updated discussion on Basel III capital adequacy standards Updated discussion on the causes and consequences of the global financial crisis New section on ICE Libor Fully updated market data and examples New statistical presentation of market capitalizations and liquidity measurement in developed and developing countries Updated discussion of market consolidations and mergers Fully updated market data and statistics New discussion on swap trading practices under new financial regulation New International Finance in Practice box on trading swaps via a clearing-house Updated statistical analysis of international markets and diversification with small-cap stocks 16 Foreign Direct Investment and Cross-Border Acquisitions 404 17 International Capital Structure and the Cost of Capital 431 This part covers topics on financial management practices for the multinational firm 18 International Capital Budgeting 458 Updated trends in cross-border investment and M&A deals Updated political risk scores for countries 19 Multinational Cash Management 477 New analysis of home bias and the cost of capital around the world Also, comparison of capital structure across countries 20 International Trade Finance 488 21 International Tax Environment and Transfer Pricing 499 Fully updated comparative national income tax rate table with updated examples New section on tax inversion maneuvers I N D E X Financial crisis credit crunch to, 289 global 2008–2009, 17–19 Financial hedging, 238 Financial markets credit crunch and, 291 deregulated, 10 globalization and, 10–11 imperfections in, 6–7 Financial markets, integration of, Financial Policy Committee, 293 Financial Services Act of 2012, 293 Financial services industry, credit crunch and, 289 Financial Services Modernization Act, 285 Financial Stability Oversight Council, 19, 104, 293 Financial Times, 318, 340 Financing indicators, functional currency and, 248 Finland, monetary policy in, 46 Finnerty, Joseph, E., 342 Firms, hedging, 211–213 Fiscal Agents Savings and Investment Centre, 497 Fiscal Assessment, 316 Fisher effects, 156–158 Fitch, 289 Fitch ratings, 311 Fixed-for-fixed rate debt service, 347 Fixed-for-floating currency swap rates, 358 Fixed-for-floating rate, 347 Flexible exchange rate regime 1973–present, 34–36, 56–58 Flexible optional hedge, 203 Flexible souring policy, 236–237 Flextronics, 21 Floating exchange rate, 40 Floating-for-floating interest rate swap, 358 Floating-rate notes (FRNs), 309 Floor-value, 309 Folks, William, 213, 214 Fonfeder, Robert, 257 Forecasters, performance of exchange rate, 162–165 Forecasting exchange rates, 158–165 Foreign bonds, 304–307 bearer bonds/registered bonds, 305–306 global bonds, 307 national security regulations, 306 security regulations, easing bond issuance, 306–307 withholding taxes, 306 Foreign branch, 505–507 Foreign branch bank, international banking, 267–268 Foreign Corrupt Practices Act (FCPA), 425 Foreign Credit Restraint Program (FCRP), 33 Foreign currency payables, hedging, 205–207 currency options contracts, 207 forward contracts, 206 money market instruments, 206 535 Foreign currency translation See Translation entries Foreign direct investment (FDI), 67, 409–413 average, 407 (exhibit) cross-border mergers and acquisitions and, 413–418 defined, 404 global trends in, 405–408 intangible assets and, 410–411 political risk and, 418–425 product life cycle, 412–413 shareholder diversification services, 413 stocks among triad, economies in, 408 (exhibit) trade barriers, 409 vertical integration and, 411–412 Foreign equity ownership restrictions, 446–447, 450 (exhibit) Foreign exchange (FX) market correspondent banking relationships, 116–117 exchange-traded funds (ETF), 135 forward market, 129–134 See also Forward market function/ structure of, 113–117 market participants, 114–116 money, as purchasing power, 112 spot market, 117–129 See also Spot market volumes surge, 177 Foreign exchange markets, Swiss intervention in, 70 Foreign exchange risk, Foreign exchange survey 2015 (exhibit), 118 Foreign exchange turnover by currency against all other currencies (exhibit), 122 by instrument and counterparty (exhibit), 120 Foreign-owned assets, frequency of expropriations of, 419 (exhibit) Foreign subsidiary, 505–507 Foreign tax credits, 505 Foreign trade transaction, 488–489 Forfaiting, 491 Fortune 100, 485 Fortune 500, 89, 122, 213 Forward contract defining, 174 differences with futures, 175 (exhibit) hedging foreign currency payables and, 206 hedging translation exposure with, 256 long/short positions and, 130 non-deliverable, 130 Forward cross-exchange rates, 130–131 Forward expectations parity (FEP), 158 Forward hedge gains/losses from, 201 (exhibit) option vs., 205 (exhibit) Forward hedge vs unhedged position, 201 (exhibit) Forward market, 129–134 forward cross-exchange rates, 130–131 forward premium, 132 forward rate quotations, 129–130 536 INDEX Forward market (Continued ) long/short forward positions, 130 non-deliverable forward contracts, 130 swap transactions, 132–134 Forward market hedge, 200–202 Forward points, 132 Forward premium, 132 Forward rate agreements (FRA), 276–279 Forward rate quotations, 129–130 Fourth methods, pricing, 511 France FDI outflows and, 405 foreign equity ownership restrictions in, 447 French civil law, 92–94 (exhibit) Justinian code, 93 Frankfurt Stock Exchange, 337 Frankle, Alan W., 485 Freddie Mac, 290 Free cash flows, 85 Free floating, exchange rate, 40 Free ride, 445 Free-rider program, 83 French, K., 435 French civil law, 92–94, 96 Frenkel, Jacob, 155 Friedman, E., 100 Friedman, Milton, 49 Full service banks, 265 Full service centers, 266 Full Universal Currency Converter, 138 Fully integrated world capital markets, 444 Functional currency, 248–249 (exhibit) Fundamental approach, rate forecasting, 160–161 Funds mobilization, 482 Fund transfers, unbundling, 513–514 Furness, Chris, 119 Future expected exchange rate, estimating, 465 Futures contracts, 173–176 defined, 174 differences with forward contracts, 175 (exhibit) Futures market, currency, 176 Futures quotations, reading, 179 G Gagnon, Louis, 338 Gains from international diversification, 366 Gande, Amar, 312 Garlicki, T Dessa, 257 G-5 countries, 35 General Agreement on Tariffs and Trade (GATT), 14 General Electric Capital Corporation, 309 General Electric (GE), 7, 19, 83, 428, 493 General Motors, 19, 291 General tax rate, 502 Gensaki bonds, 148 German civil law, 92–94, 96 Germany balance on the capital account of, 72–73 (exhibit) corporate boards in, 87 corporate governance and, 100 FDI outflows, 405 Glaesser, E., 93 Glass-Steagall Act, of 1999, 18, 285 Glaum, Martin, 443 Globa financial crisis 2008–2009, 17–19 Global Aggregate Index, 318 Global and regional debt capital markets houses 2015, 316 Global bonds, 307 Global Crossing, scandal, 9, 82 Global Depository Receipts (GDRs), 334, 335 (exhibit) Global financial crisis, 285–287 aftermath of, 293–294 credit crunch, 285–292 See also Credit crunch economic stimulus, 291–292 Global foreign exchange turnover, by country, shares of (exhibit), 113 Global government bonds, mapping yields, 318 (exhibit) Globalization, of world economy, 10–19 euro as global currency, 11–12 Europe, sovereign debt crisis 2010, 12–13 financial markets, 10–11 global financial crisis 2008–2009, 17–19 multinational corporations, 19–21 privatization and, 15–16 trade liberalization, economic integration and, 13–16 Globalized integrated world economy, Global Offset and Countertrade Association (GOCA), 493 Global Registered Shares, 337–338 Global savings glut, 286 Global shift, Global Stock Markets Factbook (S&P), 339 GLOBEX trading system, 176 Gold bimetallism and, 27 dollar pegged to, 31–32 standard 1875–1914, 28–30 Golden cross vs death cross, moving average crossover rule (exhibit), 161 Golden West Financial Corp., 290 Gold exchange standard, 32 Gold-exchange system, 32 (exhibit) Goldman Sachs, 290, 322 Gompers, Paul, 104 Good-faith money, 174 Goods, consumption/production of, Google, 83 Gorton, G., 88 Government assistance, trade financing, 491–492 537 I N D E X Government Bond Index-Emerging Markets, 318 Grabbe, J., 125 Grace, Peter, 88 Grease payments, 425 Great Depression, 18, 31 Greece debt crisis of, 12–13 Greek Drama, 12 Greenfield investment, 404, 413 Greenspan, Alan, 74, 292 Greenwich Associates, 115 Gresham’s law, 27 Grexit, 60–61 Griffin, John M., 343 Growth option, 470–472 Guggenheim Investments, 135 Gupta, Manoj, 342 H Hamburger standard (exhibit), 153 Hammond, Grant T., 493, 493–494 Hanes pantyhose, 321 Harris, Robert, 417 Harris Corporation, 495 Harvard Business Review, 82 Harvey, Campbell, 435 Harvey, Santhi C., 493 Head-and-shoulders pattern reversal signal, 162 (exhibit) Hedge exchange risk exposure, tax savings from, 213 (exhibit) Hedge funds, international diversification with, 385–386 Hedgers, 175 Hedging contingent exposure, 208–209 Hedging through invoice currency, 210 Hedging translation exposure, 255 Heineken, Euromarket, unrated bonds and, 312 Hennart, Jean-Francois, 493, 496 Heston, Steven, 343 Hietala, Pekka, 447 Hillshire Farm meats, 321 Hoffmeister, Ronald, 384 Home bias, 366, 435–436, 437 (exhibit) in portfolio holdings, 386–387 Honda, 6, 404 Hong Kong Stock Exchange, 17 Hooft Graafland, Rene, 312 Hostile takeovers, 92 Hot money, flow of, 54 Hotspot foreign exchange, 114 Housing, credit crunch and, 290–291 H-shares, 91 Huang, Victor, 91, 127, 388 Hutchison Whampoa, chain of control, 97 (exhibit) Hymer, Stephen, 409 Hyperinflation, interwar period, 30 I IBM, 83 ICAP, FX market, 113, 114, 116, 118 ICE Benchmark Administration (IBA), 274 Idiosyncratic risks, 382 Imperfect labor market, FDI and, 409–410 Implicit cost of capital (ICOC), 435 Import duties, 512–513 Incentive contracts, 87 Income tax, 500–502 Incompatible trinity, 54 Increasing sum, 14 Incremental cash flow, 459–460 India cost of capital in, 435 economic reforms in, 14–15 economy of, 157 (exhibit) Enron Development Corporation and, 427–429 Enron in, 419 foreign equity ownership restrictions in, 446 Indirect covariance, 445 Indirect foreign tax credits, 505 Indirect quotations, 120 Indirect tax, 502 Indirect world systematic risk, 445 Industrial structure, equity returns, 343 Inflationary economics, FASB 52, 250 Information asymmetry, 212 Information technologies, 10–11 Initial performance bond, 174, 193 Input/output, with/without trade, 25–26 (exhibits) Institutional Assessment, 315 Instruments, types of bonds, 307–310 dual-currency bonds, 309–310 equity-related bonds, 309 euro-medium-term notes (Euro-MTNs), 308 floating-rate notes, 309 straight fixed-rate issues, 308 Intangible assets, FDI and, 410–411, 417 Interbank bid rate, 272 Interbank market, 114 Interbank offered rate, 272 Interbank trading rooms, 125 Intercompany transactions, arrangement indicators, 249 Intercontinental Exchange (ICE), 176, 274 Intercountry correlation, 367 Interest Equalization Tax (IET), 33 Interest payments, tax savings from, 461 Interest rate, variations of basic, currency swaps and, 358 Interest rate parity (IRP), 140–149 covered interest arbitrage (CIA), 142–145 538 INDEX Interest rate parity (IRP) (Continued ) currency carry trade, 146–147 deviations from, reasons for, 147–149 diagram, 144 (exhibit) exchange rate information, 145–146 transaction costs (exhibit), 148 Interest-rate risk, 359 Interest rate swap financing pricing basic, 353 swap bank, 349 swap market, size of, 348 swap market quotations, 349–350 types of swaps, 347 Interest rate swaps, 349–353 Internal control assessment, 102 Internalization theory, 411 Internalizing transactions, 411 International Accounting Standards Board (IASB), 250 International Accounting Standards (IAS), 250–254 International Account Standards committee (IASC), 250 International and domestic bonds outstanding, 305 (exhibit) International Asset Pricing Model (IAPM), 444–446, 445 International bank external liabilities, 273 (exhibit) International Bank for Reconstruction and Development (IBRD), 31 International banking reasons for, 266 services, 264–266, 270 (exhibit) International Banking Act of 1978 (IBA), 268 International Banking Facility (IBF), 269 International banking offices, types of, 266–269 correspondent bank, 267 Edge Act banks, 268 foreign branches, 267–268 offshore banking center, 268–269 representative offices, 267 subsidiary and affiliate banks, 268 International banks, 116 International bond amounts outstanding classified by major instruments, 306 (exhibit) classified by nationality, issuer type, 311 (exhibit) International bond investment, 377–378 International bond market credit ratings, 311–313 currency distribution, nationality, type of issuer, 310–311 eurobond market structure, practices and, 314–316 See also Eurobond market structure, practices and foreign bonds, Eurobonds, 304–307 indexes, 318 instrument characteristics (exhibit), 310 types of instruments, 307–310 world’s bond markets, statistics, 304 International Business Machines, 89 International Capital Market Association (ICMA), 314 International capital market equilibrium, cross-listing effects, 457 (exhibit) International correlation structure, 366 International correlation structure, risk diversification and, 366–368 International country funds, diversification and, 380–383 International debt crisis, 281–284 debt-for-equity swaps, 283–284 history, 281–282 International diversification with American depository receipts (ADRs), 383–384 exchange traded funds (ETFs) and, 384 hedge funds and, 385–386 small-cap stocks, 387–389 International equity markets benchmarks, 339–340 characteristics of, 330 factors affecting returns, 340–343 iShares MSCI, 340 market capitalization, 323–326 market structure, trading practices, costs and, 326–330 statistical perspective, 323–325 International equity markets, trading in, 330–339 American depository receipts (ADRs), 334–340 cross-listing of shares, 334 empirical findings on cross-listing and ADRs, 338–339 Global Registered Shares, 337–338 Yankee stock offerings, 334 International finance Armed Forces, countertrade list, 495 boards of directors, family and, 88 dimensions of, 5–8 dollar and deficit, 74 electronic brokering, 114–115 foreign interest, South Africa, 342 FX market volumes surge, 177 Heineken, Euromarket, unrated bonds and, 312 Islamic forfaiting, 492 linear sequence, in manufacturing, Singer & Company, 412 management, 8–9 McCurrencies, 152–153 money talks, 118–119 Mundell, Nobel price in economics, 48–49 offshore financing, 508 rotten heart of, 276 SOX and bonds, 308 Starbucks, 515 transfer pricing, as international tax issue, 512 World Bank, currency swap, 348 International Fisher effect (IFE), 158 International gold standard, 29 International government bond market data, 319 (exhibit) 539 I N D E X International investment, exchange risk hedging and, 397–398 Internationally nontradeable assets, 444–445 Internationally tradable assets, 444–445 International monetary system (IMF), 13, 268 Argentine peso crisis, 55–56 Asian currency crisis, 51–54 bimetallism, before 1875, 28 Bretton Woods system 1945–1972, 31–34 euro and European monetary union, 43–47 Eurpopean monetary system, 41–43 evolution of, 27–28 exchange rate arrangements, 36–40 flexible exchange rate, 34–36, 56–58 gold standard and, 28–30, 31 interwar period 1915–1944, 30–31 Mexican peso crisis, 50–51 monetary union, benefits of, 44–46 International money market eurocommercial paper, 279 eurocredits, 274–275 Eurocurrency market, 272–274 eurodollar interest rate, futures contract, 279–281 euronotes, 279 forward rate agreements, 276–279 ICE LIBOR, 274 International mutual funds, 378–380 International portfolio investments, 67 International portfolio selection, optimal, 368–375 International rate of return (IRR), 432 International security returns, decomposition of, 376 (exhibit) International Swaps and Derivatives Association (ISDA), 348 Internet, information technologies and, 10–11 See also Website(s) Intervention, 116 Interwar period 1915–1944, international monetary system, 30–31 In-the-money, 182, 193 Intracountry correlation, 367 Intrinsic value, 185 Investment Company Act, 385 Investment grade ratings, 311 Investor protection, 90, 92 law and, 95–100 Invisible hands, 18 Invisible trade, 65 Invoice currency, hedging through, 210 Ioannidis, Christos, 339 IRR See International rate of return (IRR) iShares MSCI, 340 iShares MSCI South Africa Index (iShares SA), 342 Ishii, Joy, 104 Italy, 95 (exhibit) bonds issues, 307 stocks in, 91 Italy, does law matter? Ito, Takatoshi, 128 J Jaguar Fund, 385 Jamaica Agreement, 34 Janakiramanan, S., 445, 449 Jang, Hasung, 101 Japan capital account balance, 72–73 (exhibit) capital flows and, 148 corporate governance and, 100 cost of capital in, 435 foreign currency reserves and, 286 Foreign Exchange and Foreign Trade Control Law, 149 foreign exchange market and, 10 interest rate parity, deviation from (exhibit), 149 keitretsu in, 87 Jayaraman, Narayanan, 338 J-curve effect, 66 Jeffery, Jack, 115 Jensen, M., 84, 85, 87, 418 Jesswein, Kurt, 213, 214 Jobs, Steve, 85, 88 Johannesburg Securities Exchange (JSE), 342 Johnson, S., 100 Jong-Hyun, Choi, 101 Joshi, Manohar, 429 J.P Morgan Chase, 290 J.P Morgan & Co., 384 J.P Morgan Government Bond Index, 318 Justinian code, 93 K Kamath, Shyan, J., 266 Kang, J., 88 Kao, G., 338 Karolyi, A., 91, 338, 343, 442, 443 Keasey, K., 89 Keiretsu, 8, 87, 97 Kennedy, John F., 33 Keynes, John Maynard, 31, 141 Khandwala, Amit, 384 Khodorkovsky, Mikhail, Khorana, A E., 384 Kim, Yong Cheol, 312 Kindleberger, Charles, 409 Kohl, Helmut, 46 Kolodny, R., 417, 418 540 INDEX Korea foreign equity ownership restrictions in, 446 People’s Solidarity for Participatory Democracy, 101 Koskinen, Yrjö, 46 Kravis, I., 153 Kwok, Chuck, 213, 214 L Labor costs, around globe, 410 (exhibit) Laffer, Arthur, 49 Lag, lead, hedging via, 210–211 Lai, S., 104, 388 Lang, Mark, 442 La Porta, R., 84, 92 Large-cap bias, 387–389 Lau, Sie, 435, 437 Law See also Civil Law countries classification of countries, by legal origin, 94 (exhibit) corporate governance and, 92–94 Law, consequences of, 95–100 capital markets, valuation and, 99–100 ownership and control pattern, 95–99 private benefits of control, 99 Law of one price, 140, 141 Lead and lag, hedging via, 210–211 Lead/lag strategy, 211 Lead manager, 314 Lee Keun-Hee, 97 Legal origins, 92 Legal tender, no separate, 36 Lehman, Bruce, 155 Lehman Brothers, 17, 290 Lessard, Donald, 462, 464 Less-developed countries (LDCs), 282 Letter of credit (L/C), 490 Levich, Richard, 162–163 Levitt, Arthur, 101 LIBOR, 273, 276–277, 349 Limit order, 329 Limit order book, 329 Linck, J., 102 Linear sequence, in manufacturing, 412 Lins, Karl, 442 Lipsey, R., 153 Liquidity, measures of, 326 Lisbon Stock Exchange, 330 Lobo, G., 102 Local currency and foreign currency ratings, 313 (exhibit) Local currency optimal international portfolio companies, 373 Location decision, Sigma Corp’s, 519 London Interbank Offered Rate (LIBOR), 273, 276–277 London Stock Exchange Group (LSE), 350 London Stock Exchange (LSE), 10, 102, 103, 342, 442 Long forward positions, 130 Long position, 174 Long Term Capital Management (LTCM), 385 Long-term issuer credit rating definitions, 313 (exhibit) Long-term moving average (LMA), 161 Lopez-de-Silanes, F., 84, 92 Lost sales, 463 Louvre Accord, 35 Low interest rate environment, 286–287 Low vs high transfer pricing, 509 Lufthansa airlines, 211 Luxembourg Stock Exchange, 331 Lynch’s CashPro Accelerate, 485 Lyons, Richard K., 127–128 M Maastricht Treaty, 42 Macroeconomic factors, equity returns, 340–341 Macro risk, 418 Madrid Stock Exchange, 329 Magee, Stephen, 411 Magna Carta, 93 Maharashtra, state government, India, 427–429 Maintenance performance bond, 174 Managed-float system, 35 Managerial entrenchment, 85 Managerial ownership, 89–90 Managing group, 314 Mandler, Udo, 443 Mannesmann Company, Germany, 8–9 Mao Ze-dong, 419 Margin, 174 Mark, Rebecca P., 427–429 Marked-to-market, 174 Market, diversification of, operating exposure, 238 Marketability, 326 Market capitalization, 324–325 (exhibit) liquidity, measures of, 326 Market-centered governance, 100 Market completeness, 360 Market consolidations, mergers and, 330 Market imperfections, 6, 409 Market makers, 314 Market order, 326 Market portfolio, 434 Market price, 329 Markets, capital in segmented vs integrated, 434 Market structure, trading practices, costs and, 326–330 Markup policy, 509, 509–510 Masulis, Ronald W., 127 Matsumerda, 218–224 Maturity date, 174 541 I N D E X Maxwell Group, 102 May, Richard, 218–224 May Day, 10 MBS See Mortgage-backed securities McConnell, John, 87, 103 McDonald’s, 152–155 McKinnon, Ronald, 74 Measure of aggregate risk aversion, 444 Meckling, W., 84 Meese, Richard, 160–161 Melvin, Michael T., 128 Mercantilism, 75 Mercantilists, 14 Merchandise trade, 65 Merck, exchange risk management at, 238–240 Merger and acquisition (M&A), 15 See also Cross-border mergers and acquisitions Mergers, market consolidations and, 330 Meriwether, John, 385 Merrill Lynch, 68, 290 Merton, Robert, 385 Metrick, Andrew, 104 Mexican Derivatives Exchange, 176 Mexican peso crisis, 50–51 Mexico balance of payment problems and, 80 Centralia Corporation in, 250–254 foreign equity ownership restrictions in, 446 lenders to, biggest, 282 Micro risk, 418 Microsoft, 21 MicroWarehouse, 88 Miller, Darius P., 307, 442, 443 Miller, Merton, 459, 460–461 Mills, William, 82 Mini Case(s) Airbus’ dollar exposure, 218 American Machine Tools, Inc., 498 Centralia Corporation, currency swap, 364 Detroit Motor’s Latin American Expansion, 299 Dorchester, Ltd., 474–475 Eastern Trading Company, new MBA, 487 Eastern Trading Company, transfer pricing, 520 economic exposure, Albion Computers PLC, 242 efficient funds flow, Eastern Trading Company, 487 Enron vs Bombay politicians, 427–429 Grexit, 60–61 Mexico’s balance-of-payments problem, 80 Nike and Sweatshop Labor, 23–24 optimal international portfolio, 394–395 options speculator, 195 Parmalat, Europe’s Enron, 107–108 San Pico’s new stock exchange, 345 Sara Lee Corporation, Eurobonds and, 321–322 Shrewsbury Herbal Products, Ltd., 139 Sigma Corp’s location decision, 519 Strik-it-Rich Gold Mining Company, 475 Sundance Sporting Goods, Inc., 259–260 Turkish lira, purchasing power parity and, 171 Minority foreign subsidiary, 505 Mintel products, pricing strategy, 509–516 Mislocated funds, 482 Mismatch risk, 359 Mittoo, Usha, 435 MNCs See Multinational corporations Mobaus, Henry, 171 Model economy, 450 (exhibit) Modigliani, Franco, 459, 460–461 Mohamad, Mahatir, 385 Monetary approach, 172 Monetary Assessment, 316 Monetary/nonmonetary method, translation, 245 Monetary policy, 18 Monetary union benefits of, 44–46 costs of, 46–47 Money magazine, 122 Money market hedge, 202–203 Money market instruments, 206 Money Market Investor Funding Facility, 292 Money talks, 118–119 Monnet, Jean, 46 Monte Carlo simulation, 470 Moody’s, 289 Moody’s Investors Service, 311, 322 Moore Global Fund, 385 Morck, R., 89, 417 Morgan Stanley, 290, 421 Mortgage-backed securities (MBSs), 18, 287–288 Mortgage interest rates, 286–287 Moving average crossover rule, 161 Multilateral netting system, 479–480, 480 (exhibit), 481 (exhibit) Multinational company (MNC), 83 Multinational corporations (MNCs), defined, 19 global economy and, 19–21 top nonfinancial, by foreign assets (exhibit), 20 Mundell, Robert, 11, 47–49 Murphy, K., 87 Mutual funds See International mutual funds N NAFTA See North American Free Trade Agreement (NAFTA) Nasser, Gamla, 419 542 INDEX National Association of Security Dealers Automated Quotation System (NASDAQ), 329 National Bureau of Economic Research, 285 National income accounting, balance of payments and, 81 Nationality, bond issuers and (exhibit), 311 National neutrality, 500 National security regulations, bonds markets and, 306 Nearby, 178 Negotiable certificates of deposit (NCDs), 273 Nelling, E., 384 Nelson, John, 119 Nenova, T., 99 Nestlé Company, 6–7, 19, 67, 447–448 Net asset value (NAV), 135 Net present values (NPVs), 85, 458–459 Netter, J., 102 Netting center manager, 480–481 Netting systems, 478–480 New York Stock Exchange (NYSE), 17, 91, 329, 442 New Zealand, privatization in, 17 Ng, Lillian, 435 Nguyen, Nhut, H., 338 Nike, sweatshops and, 23–24 Nilsson, Mattias, 46 Nissan, 236 Nixon, Richard, 34 Nonbank dealers, 116 Non-deliverable forward contracts, 130 Nondiversifiable risk, 367 Nongovernmental organizations (NGOs), 101 Nontradable assets, pricing of, numerical situations, 447 Nontradables, 155 Nordic Countries Index, 339 Norex, 330 North American Free Trade Agreement (NAFTA), 15, 76 North American Index, 339 Northern Rock, 289 Notional principal, 348 Notional value, 288 Noviello, Joe, 119 Novo Industri, 437–439 O Obama, Barack, 293 Offer, 123 Offer price, 123 Officer, Dennis, 384 Official broker, 326 Official reserve assets, 69–71 Official settlement balance, 68 Offset transaction, 493 Offshore banking center, 268–269 Offshore financing, 508 Old Mutual, 342 OMX exchange, 330 O’Neill, Paul, 74 Open interest, 178 Openness perspective, long-term (exhibit), 13 Operating exposure defining, 230–231 determinants of, 233–235 diversification of market, 238 financial hedging, 238 flexible souring policy, 236–237 illustration of, 231–233 low-cost production sites, selecting, 236 research and development, product differentiation, 237 translation exposure, vs., 257 Operational hedging, 238 Operational risk, 271, 419 Operational techniques, 199 Operations, projected (exhibits), 231–233 Optimal international portfolios, 368–375 Optimal portfolio, solving for, 399–400 Optimum currency areas, 47 Option, 181 Options contracts, 181 Options hedge, dollar proceeds from, 204 (exhibit) Options market hedge, 203–205 Options speculator, 195 Option vs forward hedge (exhibit), 207 Oracle, 88 Organizational structures, branch and subsidiary income, 505–507 Organization for Economic Cooperation and Development Model Tax Convention, 511 Organization of Petroleum Exporting Countries (OPEC), 282, 286 Osborne, George, 515 Oslo Commerce Bank, 218 Otani, Ichiro, 148 Other investment, 68 Out-of-the-money, 182, 193 Outright forward transaction, 132 Outsource, 21 Overall balance, of payments, 68 Overall limitation, tax credits and, 505 Overseas Private Investment Corporation (OPIC), 425 Overseas stock listings, 90–91 Over-the-counter (OTC) markets, 113, 329 Ownership, capital markets, consequences of law, 96 (exhibit) Ownership, control pattern, law and, 95–99 Oxley, Michael, 308 543 I N D E X P Paris Bourse, 329 Parity interest rate, 140–149 purchasing power, 149–156 Parmalat company, scandal, 9, 82, 89, 100, 107–108 Parsley, David C., 312 Partially integrated world financial markets, 445 Par value, 32 Passive income, 502 Pattern, head-and-shoulders, reversal signal, 162 (exhibit) Paulson, Henry, 292 Pegged exchange rate within horizontal bands, 40 People’s Bank of China, 286, 292 People’s Solidarity for Participatory Democracy (PSPD), 101 Peters, Elton, 139 Petrodollar recycling, 282 Petrucci, Pandolfo, 49 Pfizer, 19 Philadelphia Stock Exchange (PHLX), 181–183 Philippines, armed forces of, countertrade and, 495 Phylaktis, Kate, 343 Plaza Accord, 35 Polfliet, R., 312 Political dynamics, corporate governance reform and, 101 Political risk defined, foreign equity ownership restrictions and, 452 Political risk, foreign direct investment (FDI) and, 418–425 Political risk analysis Turkey, 421 (exhibit) Vietnam, 421 (exhibit) Portfolio investment, 67 Portfolio risk diversification, 366 Positive net present value (NPV), 443 Poterba, J., 435 Precautionary cash balances, reduction in, 484–485 Premium, 181 Present value, calculating, 467–468 (exhibits) Price convergence, 180 Price discovery, 179 Prices, world, guide to, 155 (exhibit) Price-specie-flow mechanism, 30 Price spread, between bearer and registered shares, Nestle Corporation, 448 (exhibit) Price stability, 44 PriceWaterhouseCooper, 501 (exhibit) Pricing relationship, European option, 187–189 Pricing spillover effect, 445, 446 Pricing-to-market (PTM), 446 Primary market equity, 326 Eurobond, 314–316 Principles of Political Economy (Ricardo), 14 Private benefits of control, 99 Privatization, 16, 419 Procter & Gamble, 19 Production goods and services, low-cost sites for, selecting, 236 Product life cycle exhibit, 414 FDI and, 412–413 theory, 413 Progressive corporate taxes, 212 Promissory notes, 491 Prudential Regulation Authority, 293 Public corporations, governance of, 83–84 Public good property, 411 Purchasing power parity (PPP), 149–156 in capital budgeting, 470 deviations, real exchange rate and, 151 evidence on, 151–156 exchange rate determination, 172 international, among exchange, interest, and inflation rates, 158 (exhibit) Pure domestic systematic risk, 445 Pure foreign market risk, 449 Put, 181 Puthenpurackal, John J., 307 Pyramidal ownership, 97 Q Qatar, Doha Round in, 14 Qualified institutional buyers (QIBs), 307, 308 Quality spread differential (QSD), 351 Quantitative easing, 292 Quantity theory of money, 172 R Random walk hypothesis, 159 Rao, Narasimha, 428 Ravenscraft, David, 417 Reagan, Ronald, 49 Real exchange rates, 151 Real options, in capital budgeting, 470–472 Recurrent exposure, hedging with swap contracts, 209–210 Reference entity, 288 Reform, corporate governance See Corporate governance reform Registered bonds, 305–306 Regression coefficient, 228 Regression parameters, computations of, 229 (exhibit) Reinvoice center, 211 Relative efficiency, 26 Remeasurement, 249 544 INDEX Renminbi (RMB), 54–55 Reporting currency, 249 Representative offices, international banking, 267 Resale price approach, 511 Residential method, of declaring national tax jurisdiction, 504 Residential taxation, 504 Residual control right, 85 Resnick, Bruce G., 307, 342 Resolution authority, 103 Restricted funds, 463 Retail market, 114 Reuters, 63 Reversal signal, head-and-shoulders pattern, 162 (exhibit) Reversing trade, 175 Ricardo, David, 14, 25, 150 Richardson, J., 152 Rio Tinto, 411 Risk, interest rate, 359 Risk-adjusted discovery method, 469 Risk adjustment, in capital budgeting analysis, 469 Risk-aversion measure, 444 Risk diversification, international correlation structure and, 366–368 Risk management products, use of, 213–214 Risk publication, 164 Risk reduction, domestic vs international diversification (exhibit), 367 Risk-return, large vs small-cap funds, 389 Risk-weighted assets, 270 Robert Bosch, 99 Robertson, Julian, 385 Robson, Mark, 119 Rogoff, Kenneth, 160–161 Roll, Richard, 342 Roman Empire, 93 Round-trip transactions, 176 Rouwenhorst, K., 343 Roux, Andre, 342 Royal Dutch Shell, 411 Rugman, Alan M., 266 Rule 415, SEC, 306–307 Rule 144A, SEC, 307 S Sabherwal, 164 Sales market indicators, functional currency and, 248 Sales price indicators, functional currency and, 248 Salomon Brothers, 385 Samsung Electronics, 83, 97 Samuelson, Paul, 49 Samurai bonds, 305 San Pico Stock Exchange, 345 Sara Lee Corporation, Eurobonds and, 322 Sarbanes, Paul, 308 Sarbanes-Oxley Act, 101–102, 308 Sarkissian, Sergei, 439 Scandinavian law, 94 (exhibit), 96 Schaffer, Matt, 493 Scheraga, C., 417, 418 Schill, Michael, 439 Schmid, F A., 88 Scholes, Myron, 385 Schuman, Robert, 46 Schumpeter, 100 Sears, Rick, 115 Secondary market equity, 326 eurobond, 314–316 Securities and Exchange Commission (SEC), 18, 91, 102, 306 Security regulations, bond issuance and, 306–307 Selling group, 314 Sensitivity analysis, capital budgeting, 470 Services, 4, 65 Settled-up, 174 Settlement price, 174 Shadow banking system, 286 Shandong Iron & Steel Group, 411 Shanghai Stock Exchange, 16–17 Shapiro, A., 451 Share exchange risk, 210 Shareholder diversification services, FDI and, 413 Shareholder rights, 82 Shareholder wealth maximization, Share turnover velocity, 327–328 (exhibit) Share valuation, 326 Sharpe performance measure (SHP), 370, 379, 388 Shastri, Kuldeep, 192, 338 Shelf registration, 306–307 Shenzhen Stock Exchange, 16 Shift exchange risk, 210 Shivdasani, A., 88 Shleifer, A., 84, 89, 92, 93 Short, H., 89 Short forward positions, 130 Short position, 174 Short-term moving average (SMA), 161 Shrewsbury Herbal Products, Ltd (mini case), 139 SIBOR, 273 Siemens, 19 Sigma Corp, 519 Silver, bimetallism and, 28 Simon, David, 342 Singapore Depository Receipts, 334 Singapore Interbank Offered Rate (SIBOR), 273 Singapore International Monetary Exchange, 173 Singapore Stock Exchange, 331, 334 545 I N D E X Singer, I M., 412 Singer & Company, 412 Single-currency interest rate swap, 347 SK Telecom, 101 Small figure, 125 Smith, Adam, 83 Smith, Jeffery, 322 Smithsonian Agreement, 34, 41 Snake, 41 Société Générale, 173 Society for Worldwide Interbank Financial Telecommunications (SWIFT), 117 Solnik, Bruno, 340, 367 Soros, George, 385 Source country, 504 Source method, of declaring tax jurisdiction, 504–505 Source taxation, 504 Sourcing policy, flexible, 236–237 South Africa cost of capital in, 435 foreign interest in, 342 Sovereign debt crisis, 291 Sovereign rating framework, 315 (exhibit) Sovereign risk, 359 Sovereign wealth funds (SWFs), 68 Spaak, Paul-Henri, 46 Special drawing rights (SDRs), 33 (exhibit) Specialist, 329 Speculative transactions, 116 Speculators, 175, 195 S&P Global Ratings, 311, 322 issuer credit rating, 313 (exhibit) rating framework, 315 (exhibit) Spot foreign exchange market microstructure, 127–129 Spot FX trading, 124–125 Spot market, 117–129 bid-ask spread, 123–124 cross-exchange rate, alternate expressions for, 123 cross-exchange rate quotations, 122–123 cross-rate trading desk, 125–126 FX trading, 124–125 spot foreign exchange market microstructure, 127–129 spot rate, 117 triangular arbitrage, 127 Spot rate, 117–118 Spread, 288 Stabilized arrangement, 36–40 Standard Chartered, 115, 118 Standard consumption basket, 149 Standardized features, futures contract, 174 Standard & Poor’s 500, 291 Standard & Poor’s and Moody’s, 12 Standard & Poor’s (S&P), 312 Starbucks, 515 Statistical discrepancy, balance of payments and, 68–69 Stella Automobil, 99 Sterilization of gold, 30 Stitzel, Thomas, 451 Stock exchanges, total domestic, foreign company listings on major, 332–333 (exhibit) Stock market indexes, major national, 341 Stock markets, emerging, 91 Stock returns, correlations among international, 367 Stocks country-to-country frequency distribution of foreign listings, 439 (exhibit) cross-border listing of, 439–443 Stonehill, Arthur, 437, 451 Straight fixed-rate bond, 308 Striking price, 181 Strik-it-Rich Gold Mining Company, 475 Structured investment vehicles (SIVs), 287, 288 Stulz, R., 91, 312, 339, 435, 442 Subpart F income, 507 Subprime mortgage crisis, in United States, 17–19, 103 Subsidiaries, financial structure of, 451–452 Subsidiary bank, 268 Substitution portfolio, 449 Sundance Sporting Goods, Inc., 259–260 Suspension option, 470–472 Swap See Currency swap Swap bank, 349 Swap broker, 349 Swap contracts, hedging recurrent exposure with, 209–210 Swap dealer, 349 Swap market, size of, 348 Swap market quotations, 349–350 Swap transactions, 132–134 Sweden, foreign equity ownership restrictions in, 446 Swiss central bank, 237 Swiss intervention, in foreign exchange markets, 70 (exhibit) Swiss National Bank (SNB), 69 Switch trade, 493 Switzerland foreign equity ownership restrictions in, 446 official reserve assets and, 69 Syndicate, 274 Synergistic gains, 417 Systematic risk, 434 Systemic risk, 19, 103–104, 367 T Tandon, Kishore, 192, 338 Tanzi, Calisto, 107 Taxation objectives of, 499–500 transfer pricing and, 507–516 546 INDEX Taxation, types of income tax, 500–502 value-added tax (VAT), 502–503 withholding tax, 502 Tax environments, national foreign tax credits, 505 territorial taxation, 504–505 worldwide taxation, 504 Tax equity, 500 Tax haven country, 506–507 Tax Increase Prevention and Reconciliation Act (TIPRA), 507 Tax neutrality, 499 Tax rates, from certain countries, 501 (exhibit) Tax Reform Act of 1986, 507 Tax treaties, 502 Technical analysis, 162 Technical approach, to rate forecasting, 161–162 TED spread, 289 Teltrex’s cash management system, 477–482 Temasek Holdings, 68 Templeton Global Smaller Companies Fund, 389 Temporal method, transaction, 245 Territorial method, declaring tax jurisdiction, 504–505 Territorial taxation, 504–505 Thailand, foreign equity ownership restrictions in, 446 Theory of comparative advantage, 14 “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure (Jensen & Meckling), 83 Thomson Corporation, 63 Thomson Reuters, 113–115, 118 Thornton, Grant, 107 TIBOR, 273 Tier I Core capital, 270, 289 Tier III capital, 270–271 Tier II Supplemental capital, 270 Time draft, 490 Time value, 187 Timing option, 470–472 Tiwari, Siddharth, 148 Tobin tax, 54 Tokyo Interbank Offered Rate (TIBOR), 273 Tokyo Stock Exchange, 10 Toronto Stock Exchange (TME), 329 Total official resources, composition of, 71 (exhibit) Toyota, 19, 83, 86 Trade, theory of comparative advantage and, 25–26 Trade balance, 65 Trade barriers, FDI and, 409 Trade deficits, 76–77 Trade finance countertrade, 493–495 foreign trade transaction, 488–489 forfaiting, 491 government assistance, in exporting, 491–493 Trade imbalance, 65 Trade liberalization, economic integration and, 13–16 Transactional restrictions, 306 Transaction balances, 477 Transaction exposure cross-hedging minor currency exposure, 208 defined, 198 determinants of operating, 233–235 exposure netting, 211 firms, hedging and, 211–213 forward market hedge, 200–202 hedging contingent exposure, 208–209 hedging foreign currency payables, 205–207 hedging recurrent exposure, with swap contracts, 209–210 hedging through invoice currency, 210 hedging via lead and lag, 210–211 illustration, of operating, 231–233 managing operating exposure, 236–237 money market hedge, 202–203 operating exposure, 230–231 options market hedge, 203–205 risk management products, use of, 213–214 Transactions domain, 11 Transfer pricing, 85 advance pricing agreement, 516 blocked funds, 516–517 differential income tax rates and, 510 exchange restrictions, 509–510 import duties, 512–513 as international tax issue, 512 low vs high markup policy, 509 taxation and, 507–516 unbundling fund transfers, 513–514 Transfer risk, 419 Translation exposure balance sheet hedge, 255 defined, 198, 244 derivatives hedge, 256–257 hedging, 255 hedging with forward contract, 256 management of, 254–257 operating exposure, vs., 257 report, 252 transaction exposure vs., 254–255 Translation methods, 244–246 comparison, 246 comparison effects of, on financial statement preparation, 247 (exhibits) current/noncurrent, 244–245 547 I N D E X Translation methods (Continued ) current rate, 245 monetary/nonmonetary, 245 temporal, 245 Translation process, FASB 52, mechanics, 249 Transparency International, 421, 421 (exhibit) Travlos, Nicholas, 417 Travlos, Nickolaos, 87, 103 Treasury Management International, 482 Trenner, Justyn, 114–115, 119 Trester, J., 384 Triangular arbitrage, 127, 128 (exhibit) Trichet, Jean-Claude, 13 Triffin, Robert, 32 Triffin paradox, 32 Trilemma, exchange rate and, 54 Troubled Assets Relief Program (TARP), 19, 292 Tuffey, Chris, 312 Turkey lira, purchasing power, 171 political risk analysis, 421 (exhibit) Turner, Robert D M., 512 U Unbundling fund transfers, 513–514 Uncontrolled foreign corporation, 505 Uncovered interest rate parity, 146 Underwriters, 314 Underwriting spread, 314 Underwriting syndicate, 314 Unemployment, credit rate and, 290–291 Unemployment rate, United States, DJIA and, 17 (exhibit) Unilateral APA, 516 Unilateral transfers, 65 Unilever NV, 321 Unique risks, 382 United Auto Workers (UAW), 404 United Kingdom, 95 (exhibit) capital account balance, 72–73 (exhibit) cost of capital in, 435 English common law, colonies and, 92–94 United Kingdom, does law matter? United Nations Conference on Trade and Development (UNCTAD), 19 United States balance of payments summary 2015 (exhibit), 64 balance on the capital account of, 72–73 (exhibit) cost of capital in, 435 credit crunch in, 285–287 investment in foreign equities, 366 subprime mortgage crisis in, 17–19 tax credits, calculating foreign, 506 (exhibit) tax treaty, with selected countries, 503 (exhibit) trading partners, top, 77 (exhibit) unemployment rate, DJIA and, 17 (exhibit) Universal banks, 265 U.S Department of Commerce, 11, 493 U.S Department of Labor, 290 U.S Generally Accepted Accounting Rules (US-GAAP), 443 U.S Internal Revenue Code, 511 U.S Securities and Exchange Commission (SEC), 442 U.S Securities Exchange Act of 1934, 306, 337 U.S Treasury, 290 U.S Treasury Securities, 289 V Valuation, capital markets, law and, 99–100 Value-added tax (VAT), 502–503, 504 (exhibit) Value-additivity, 462 VanderGriend, Mark, Van Kirk, Hilary, 509–514 Veritas Emerging Market Fund, 171 Vernon, Raymond, 412–413 Vertical integration, FDI and, 411 Vietnam, political risk indicator, 421 (exhibit) Vishny, R, 84, 89, 92 Volatile short-term behavior, 146 Volcker, Paul, 49, 294 Volker Rule, 103, 294 Volvo, 237, 416 Vu, Joseph, 338 W Wachovia, 290 Wahab, Mahmood, 384 Wall Street Journal, The, 7, 101, 318, 340, 504 Wallstreet Treasura, 485 Wal mart Stores Inc., 19, 321 Wanniski, Jude, 48 Warms, Mark, 114–115 Warrant, 309 Washington Mutual, 290 Wealth of Nations (Smith), 83 Website(s), 15 http://ec.europa.eu/taxation_customs/taxation/vat, 502 http://federalreserve.gov/releases/h10/hist, 60 http://money.cnn.com/data/currencies, 122 http://thomsonreuters.com, 113 http://tpmba.com, 519 http://transparency.org, 421 http://unctadstat.unctad.org, 404 http://us.ishares.com/product_info/fundovervoew /EWW.htm, 394 http://www.federalreserve.gov/releases/h10/hist/, 34 http:data.un.org, 171 548 INDEX Website(s) (Continued ) http:fx.sauder.ubc.ca, 170 http:reports.duni.com/en/corporate/investors /reports/2014, 245 World Fact Book, 427 www.adb.org, 54 www.adrbnymellon.com/indices/composite-dr-index/ overview, 439 www.adr.com, 345, 384 www.afme.eu, 321 www.bea.gov, 65 www.bgcpartners.com, 116 www.bis.org, 112, 270, 349 www.bloomberg.com, 345 www.clearstream.com, 316 www.cls-group.com, 117 www.cmegroup.com, 176, 195 www.columbia.edu/edu/ram15, 47 www.currenex.com, 116 www.ecb.int, 44 www.ecb.int/stats, 76 www.ecgd.gov.uk, 493 www.ecgi.org, 84 www.economist.com/markets/bigmac/index.cfm, 150 www.eurobor.org, 273 www.euroclear.com, 316 www.euronetting.com, 485 www.euronext.com, 330 www.eximbankindia.com, 493 www.exim.gov, 492 www.export.gov, 491 www.fasb.org, 245 www.federalreserve.gov/releases/H10/hist, 218 www.finpipe.com/intrateswaps.htm, 364 www.fiscalagent.com, 497 www.fitchratings.com, 311 www.ford.com, 259 www.forexster.com, 116 www.Fxall.com, 114 www.fxstreet.com, 161 www.gcgf.org, 100 www.globaloffset.org, 493 www.icap.com, 113, 138 www.icmagroup.org, 314 www.ifrs.org, 250 www.imf.org, 10, 79 www.imf.org/external/fin.htm, 33 www.isda.org, 348 www.ishares.com, 340 www.lib.berkeley.edu/doemoff/govinfo/intl /gov_eu.html, 15 www.londonstockexchange.com, 454 www.moodys.com, 311 www.msci.com, 339 www.nasdaq.com, 326 www.nasdaqomx.com, 329 www.newyorkfed.org, 113 www.novo.dk, 437 www.nyse.com, 329, 454 www.oecd.org, 106 www.oecd.org/statsportal, 160 www.sec.gov/edgar.shtml, 243 www.sec.gov/info/edgar.shtml, 212 www.sgx.com, 279 www.standardandpoors.com, 311 www.swift.com, 117 www.taxsites.com/international.html, 502, 519 www.theclearinghouse.org, 117 www.theice.com, 176 www.theice.com/iba/libor, 274 www.themexicofund.com, 394 www.tmx.com, 329 www.treasurers.org, 486 www.treasurymanagement.com, 482 www.unctad.org/wir, 19 www.ustransferpricing.com, 511 www.worldbank.org, 463 www.wto.org, 14 www.xe.com/currencyconverter, 138 Wei, John, 338 Weighted average cost of capital, 432, 464 Wells Fargo, 290 Wenchi, K C., 338 Weston, James, 212 Whaley, Robert, 193 Wharton Econometric Forecasting, 164 White, Harry Dexter, 31 Wilshire Associates, 89 Withholding taxes international bond market and, 306 taxation types, 502 World Bank countertrade categories, 496 currency swap, 348 World beta, 370 WorldCom, scandal, 9, 82, 100 World Currency Options, 181–182 World Equity Benchmark Shares (WEBS), 384 World market portfolio, 445 World’s bond markets, 304 World systematic risk, 445 World Trade Organization (WTO), 14 Worldwide taxation, 504 W.R Grace, 88 Writer, 181 549 I N D E X X Xia, Lichuan, 343 Y Yang, T., 102 Yankee bonds, 305, 306, 307 Yankee stock offerings, 334 Yeung, Bernard, 417 Yukos, Russian oil, Z Zero-coupon-for-floating rate swap, 358 Zero-sum game, 174 Zhang, Bohui, 435 Zhejiang Geely Holding Group, 416 Zhou, J., 102 Zingales, L., 99 Zurich Stock Exchange, 329, 447 ... Advantage AS THE TITLE International Financial Management indicates, in this book we are concerned with financial management in an international setting Financial management is mainly concerned with... 14 Why is it important to study international financial management? How is international financial management different from domestic financial management? Discuss the major trends that have... Second Edition International Financial Management Eighth Edition Cheol S Eun Georgia Institute of Technology Bruce G Resnick Wake Forest University INTERNATIONAL FINANCIAL MANAGEMENT, EIGHTH EDITION