Fundamentals Of Multinational Finance

by Moffett, Michael H.; Stonehill, Arthur I.; Eiteman, David K.

• ISBN13: 9780321280312
• ISBN10: 0321280318
• Edition: 3rd
• Format: Hardcover
• Copyright: 2009-01-01
• Publisher: Addison Wesley

Summary

Written for the undergraduate student, Fundamentals of Multinational Finance, Second Edition is a focused, streamlined adaptation of the market-leading classic, Multinational Business Finance.Committed to preparing the leaders of tomorrow's multinational enterprises, the authors have included numerous mini-cases and real-world examples to teach students to recognize the challenges and benefit from the opportunities inherent in modern global markets. Lucid explanations and engaging vignettes are rendered in the authoritative voice of the best-selling authors.

Table of Contents

PART 1 GLOBAL FINANCIAL ENVIRONMENT	1	(88)
Financial Goals and Corporate Governance	3	(32)
What Is Different About Global Financial Management?	4	(1)
The Globalization Process	5	(1)
Global Transition I: Trident Moves from the Domestic Phase to the International Trade Phase	5	(2)
Global Transition II: The International Trade Phase to the Multinational Phase	7	(5)
What Is the Goal of Management?	12	(3)
Corporate Governance	15	(15)
Real World Example 1.1 Corporate Crime: The Reckoning	21	(1)
Real World Example 1.2 When Scandals Go Global	22	(3)
Real World Example 1.3 Conrad Black and Minority Shareholder Rights	25	(1)
Mini-Case: The Failure of Corporate Governance at Enron	26	(4)
Summary of Learning Objectives	30	(1)
Questions	31	(1)
Problems	32	(2)
Internet Exercises	34	(1)
The International Monetary System	35	(28)
Currency Terminology	36	(1)
History of the International Monetary System	37	(8)
Contemporary Currency Regimes	45	(3)
Emerging Markets and Regime Choices	48	(3)
The Birth of a Currency: The Euro	51	(5)
Real World Example 2.1 The Chinese Yuan (Or Renminbi)	55	(1)
Real World Example 2.2 will the New Member States of the EU Automatically Adopt the Euro?	56	(1)
Exchange Rate Regimes: What Lies Ahead?	56	(3)
Mini-Case: The Creation of Eurodollars	57	(2)
Summary of Learning Objectives	59	(1)
Questions	60	(1)
Problems	61	(1)
Internet Exercises	62	(1)
The Balance of Payments	63	(26)
Typical Balance of Payments Transactions	64	(1)
Fundamentals of Balance of Payments Accounting	65	(2)
The Accounts of the Balance of Payments	67	(2)
The Capital/Financial Account	69	(5)
The Balance of Payments in Total	74	(1)
The Balance of Payments Interaction with Key Macroeconomic Variables	74	(4)
Capital Mobility	78	(5)
Real World Example 3.1 The United States as the World's Largest Debtor Nation	79	(2)
Mini-Case: Turkey's Kriz (A): Deteriorating Balance of Payments	81	(2)
Summary of Learning Objectives	83	(1)
Questions	84	(2)
Problems	86	(2)
Internet Exercises	88	(1)
PART 2 FOREIGN EXCHANGE THEORY AND MARKETS	89	(114)
International Parity Conditions	91	(26)
Prices and Exchange Rates	92	(8)
Real World Example 4.1 Purchasing Power Parity: Burgers or Beans?	95	(3)
Real World Example 4.2 Deviations from Purchasing Power Parity in the 20th Century	98	(2)
Interest Rates and Exchange Rates	100	(8)
Forward Rate as an Unbiased Predictor of the Future Spot Rate	108	(1)
Prices, Interest Rates, and Exchange Rates in Equilibrium 84--85	109	(3)
Mini-Case: The Introduction of the Porsche 911 Carrera 4S Cabriolet	111	(1)
Summary of Learning Objectives	112	(1)
Questions	113	(1)
Problems	113	(3)
Internet Exercises	116	(1)
Foreign Exchange Rate Determination	117	(32)
The Asset Market Approach to Forecasting	119	(3)
Real World Example 5.1 Uruguay Infected	120	(2)
Disequilibrium: Exchange Rates in Emerging Markets	122	(1)
Illustrative Case: The Asian Crisis	122	(3)
Illustrative Case: The Russian Crisis of 1998	125	(3)
Illustrative Case: The Argentine Crisis of 2002	128	(5)
Forecasting in Practice	133	(9)
Real World Example 5.2 Forecasting the Dollar/Pound Exchange Rate (Cable) In Summer 2004	138	(1)
Mini-Case: Turkey's Kriz (B): Uncovered Interest Arbitrage	139	(3)
Summary of Learning Objectives	142	(1)
Questions	143	(1)
Problems	144	(3)
Internet Exercises	147	(2)
The Foreign Exchange Market	149	(24)
Geographical Extent of the Foreign Exchange Market	150	(1)
Functions of the Foreign Exchange Market	151	(1)
Market Participants	151	(3)
Real World Example 6.1 The Foreign Exchange Dealer's Day	153	(1)
Real World Example 6.2 Beware of Foreign Currency Trading Frauds	154	(1)
Transactions in the Interbank Market	154	(2)
Size of the Market	156	(1)
Foreign Exchange Rates and Quotations	157	(12)
Mini-Case: The Venezuelan Bolivar Black Market	166	(3)
Summary of Learning Objectives	169	(1)
Questions	169	(1)
Problems	170	(2)
Internet Exercises	172	(1)
Foreign Currency Derivatives	173	(30)
Foreign Currency Futures	174	(4)
Currency Options	178	(3)
Foreign Currency Speculation	181	(7)
Real World Example 7.1 Rogue Currency Trader at Allied Irish Bank	181	(7)
Option Pricing and Valuation	188	(4)
Prudence in Practice	192	(5)
Real World Example 7.2 A Select List of Derivative and Managerial Disasters	193	(1)
Mini-Case: Rogue Trader, Nicholas Leeson	193	(4)
Summary of Learning Objectives	197	(1)
Questions	198	(1)
Problems	198	(4)
Internet Exercises	202	(1)
PART 3 FOREIGN EXCHANGE EXPOSURE	203	(84)
Transaction Exposure	205	(30)
Types of Foreign Exchange Exposure	206	(1)
Why Hedge?	207	(3)
Real World Example 8.1 Amazon.com's Quest for Profits: The Role of Currency Gains/Losses	208	(2)
Measurement of Transaction Exposure	210	(3)
Trident's Transaction Exposure	213	(8)
Management of an Account Payable	221	(1)
Risk Management in Practice	222	(4)
Real World Example 8.2 Manipulation of Currency Gains and Losses	223	(2)
Mini-Case: Lufthansa's Purchase of Boeing 737s	225	(1)
Summary of Learning Objectives	226	(1)
Questions	227	(1)
Problems	227	(8)
Operating Exposure	235	(29)
Attributes of Operating Exposure	236	(2)
Illustrating Operating Exposure: Trident	238	(5)
Real World Example 9.1 Volvo Car	238	(5)
Strategic Management of Operating Exposure	243	(2)
Real World Example 9.2 Goodyear's Response to the Mexican Peso's Devaluation	244	(1)
Proactive Management of Operating Exposure	245	(8)
Contractual Approaches: Hedging the Unhedgeable	253	(6)
Mini-Case: Toyota's European Operating Exposure	254	(1)
Mini-Case: Porsche Exposed	255	(4)
Summary of Learning Objectives	259	(1)
Questions	259	(1)
Problems	260	(3)
Internet Exercises	263	(1)
Translation Exposure	264	(23)
Overview of Translation	265	(1)
Translation Methods	266	(5)
Translation Example: Trident Europe	271	(5)
Comparing Translation Exposure with Operating Exposure	276	(1)
Managing Translation Exposure	277	(6)
Real World Example 10.1 Hedging the Euro Away	279	(2)
Mini-Case: Lajolla Engineering Services	281	(2)
Summary of Learning Objectives	283	(1)
Questions	283	(1)
Problems	284	(1)
Internet Exercises	285	(2)
PART 4 FINANCING THE GLOBAL FIRM	287	(102)
Global Cost and Availability of Capital	289	(29)
Weighted Average Cost of Capital	291	(5)
The Demand for Foreign Securities: The Role of International Portfolio Investors	296	(1)
The Link Between Cost and Availability of Capital	296	(4)
Real World Example 11.1 Market Liquidity	298	(2)
Illustrative Case: Novo Industri A/S (Novo)	300	(6)
Globalization of Securities Markets	306	(2)
Real World Example 11.2 Bang & Olufsen and Philips N.V.	307	(1)
The Cost of Capital for MNEs Compared with Capital for Domestic Firms	308	(1)
Solving a Riddle: Is the Weighted Average Cost of Capital for MNEs Really Higher Than for Their Domestic Counterparts?	309	(3)
Mini-Case: Nestle: An Application of the International Capm	311	(1)
Summary of Learning Objectives	312	(1)
Questions	313	(1)
Problems	314	(3)
Internet Exercises	317	(1)
Sourcing Equity Globally	318	(20)
Designing a Strategy to Source Equity Globally	319	(3)
Foreign Equity Listing and Issuance	322	(3)
Effect of Cross-Listing and Equity Issuance on Share Price	325	(3)
Barriers to Cross-Listing and Selling Equity Abroad	328	(1)
Alternative Instruments to Source Equity in Global Markets	329	(4)
Real World Example 12.1 Private Equity in Argentina and the Argentine Crisis	332	(1)
Mini-Case: Deutsche Bank's Global Registered Shares	332	(1)
Summary of Learning Objectives	333	(1)
Questions	334	(1)
Problems	335	(2)
Internet Exercises	337	(1)
Financial Structure and International Debt	338	(26)
Optimal Financial Structure	339	(1)
Optimal Financial Structure and the MNE	340	(3)
Financial Structure of Foreign Subsidiaries	343	(5)
Real World Example 13.1 Equity Carve-Outs	344	(4)
International Debt Markets	348	(6)
Real World Example 13.2 Pricing and Structure of a Syndicated Eurocredit	350	(4)
Project Financing	354	(5)
Real World Example 13.3 Islamic Finance	356	(1)
Mini-Case: Tirstrup Biomechanics (Denmark): Raising Dollar Debt	357	(2)
Summary of Learning Objectives	359	(1)
Questions	360	(1)
Problems	361	(3)
Internet Exercises	363	(1)
Interest Rate and Currency Swaps	364	(25)
Defining Interest Rate Risk	365	(2)
Management of Interest Rate Risk	367	(8)
Trident Corporation: Swapping to Fixed Rates	375	(2)
Real World Example 14.1 Caveat Emptor, Procter & Gamble's Swaps	376	(1)
Currency Swaps	377	(1)
Trident Corporation: Swapping Floating Dollars into Fixed Rate Swiss Francs	378	(3)
Real World Example 14.2 Ecuadorian Debt-For-Development	379	(2)
Counterparty Risk	381	(1)
Illustrative Case: A Three-Way Back-to-Back Cross-Currency Swap	381	(3)
Mini-Case: Mcdonald's Corporation's British Pound Exposure	383	(1)
Summary of Learning Objectives	384	(1)
Questions	384	(1)
Problems	385	(2)
Internet Exercises	387	(2)
PART 5 FOREIGN INVESTMENT DECISIONS	389	(100)
International Portfolio Theory and Diversification	391	(21)
International Diversification and Risk	392	(3)
Real World Example 15.1 Should Fund Managers Hedge Currency Risk?	395	(1)
Internationalizing the Domestic Portfolio	395	(5)
National Markets and Asset Performance	400	(7)
Real World Example 15.2 Equity Market Crises in the Twentieth Century	401	(5)
Mini-Case: Strategic Currency Hedging	406	(1)
Summary of Learning Objectives	407	(1)
Questions	408	(1)
Problems	409	(2)
Internet Exercises	411	(1)
Foreign Direct Investment Theory and Strategy	412	(23)
The Theory of Comparative Advantage	413	(5)
Market Imperfections: A Rationale for the Existence of the Multinational Firm	418	(2)
Real World Example 16.1 Examples of Global Outsourcing of Comparative Advantage in Intellectual Skills	419	(1)
Sustaining and Transferring Competitive Advantage	420	(3)
The OLI Paradigm and Internalization	423	(1)
Deciding Where to Invest	424	(2)
How to Invest Abroad: Modes of Foreign Involvement	426	(5)
Real World Example 16.2 Keeping it in the Family: American Exports to and Imports from American-Owned Affiliates Abroad (Billions of US$)	427	(3)
Mini-Case: Benecol's Global Licensing Agreement	430	(1)
Summary of Learning Objectives	431	(1)
Questions	432	(1)
Problems	433	(1)
Internet Exercises	434	(1)
Political Risk Assessment and Management	435	(28)
Defining Political Risk	436	(1)
Assessing Political Risk	437	(2)
Firm-Specific Risks	439	(4)
Country-Specific Risks: Transfer Risk	443	(3)
Country-Specific Risks: Cultural and Institutional Risks	446	(5)
Real World Example 17.1 Enron International in India	451	(1)
Global-Specific Risks	451	(9)
Real World Example 17.2 International Supply Chain Security: Time is Money	454	(2)
Real World Example 17.3 Corporate Sustainability	456	(1)
Mini-Case: Globalization and Starbucks Coffee	456	(4)
Summary of Learning Objectives	460	(1)
Questions	460	(2)
Internet Exercises	462	(1)
Multinational Capital Budgeting	463	(26)
Complexities of Budgeting for a Foreign Project	464	(1)
Project Versus Parent Valuation	465	(2)
Illustrative Case: Cemex Enters Indonesia	467	(13)
Real Option Analysis	480	(3)
Mini-Case: Trident's Chinese Market Entry -- An Application of Real Option Analysis	481	(2)
Summary of Learning Objectives	483	(1)
Questions	484	(1)
Problems	484	(4)
Internet Exercises	488	(1)
PART 6 MANAGING MULTINATIONAL OPERATIONS	489
International Trade Finance	491	(28)
The Trade Relationship	492	(2)
The Trade Dilemma	494	(1)
Benefits of the System	495	(2)
Key Documents	497	(1)
Letter of Credit (L/C)	497	(3)
Draft	500	(1)
Bill of Lading (B/L)	501	(1)
Example: Documentation in a Typical Trade Transaction	502	(2)
Real World Example 19.1 The Letter of Credit Goes Online	504	(1)
Government Programs to Help Finance Exports	504	(2)
Trade Financing Alternatives	506	(3)
Forfaiting: Medium and Long-Term Financing	509	(5)
Mini-Case: Crosswell International's Precious Ultra-Thin Diapers	511	(3)
Summary of Learning Objectives	514	(1)
Questions	515	(1)
Problems	516	(2)
Internet Exercises	518	(1)
Multinational Tax Management	519	(33)
Tax Principles	520	(7)
Transfer Pricing	527	(3)
Real World Example 20.1 Over-and Under-Invoicing	528	(2)
Methods of Determining Transfer Prices	530	(2)
U.S. Taxation of Foreign Source Income	532	(7)
Tax-Haven Subsidiaries and International Offshore Financial Centers	539	(6)
Real World Example 20.2 The Activities of Offshore Financial Centers	541	(1)
Mini-Case: Stanley Works and Corporate Inversion	541	(4)
Summary of Learning Objectives	545	(1)
Questions	546	(2)
Problems	548	(3)
Internet Exercises	551	(1)
Working Capital Management	552
Trident Brazil's Operating Cycle	553	(2)
Trident's Repositioning Decisions	555	(1)
Constraints on Repositioning Funds	556	(1)
Conduits for Moving Funds by Unbundling Them	557	(1)
International Dividend Remittances	558	(1)
Net Working Capital	559	(7)
International Cash Management	566	(6)
Financing Working Capital	572	(5)
Mini-Case: Honeywell and Pakistan International Airways	575	(2)
Summary of Learning Objectives	577	(1)
Questions	578	(2)
Problems	580	(3)
Internet Exercises	583
Glossary	1	(1)
Index	1