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Contents PART 1 Global Financial Environment 1 Chapter 1 Multinational Financial Management: Opportunities and Challenges 2 Financial Globalization and Risk 3 The Global Financial Marketplace 4 GLOBAL FINANCE IN PRACTICE 1.1 The Rocketing Swiss Franc 8 The Theory of Comparative Advantage 11 What Is Different About International Financial Management? 12 GLOBAL FINANCE IN PRACTICE 1.2 The Peso, Dollar, Yen¡ªand Pok¨¦mon Go 13 The Globalization Process 15 GLOBAL FINANCE IN PRACTICE 1.3 Corporate Responsibility and Corporate Sustainability 19 Summary Points 19 MINI-CASE: Crowdfunding Kenya 20 Questions 23 Problems 23 Internet Exercises 27 Chapter 2 The International Monetary System 28 History of the International Monetary System 28 GLOBAL FINANCE IN PRACTICE 2.1 Hammering Out an Agreement at Bretton Woods 31 GLOBAL FINANCE IN PRACTICE 2.2 SDR Expanded to Include Chinese Renminbi 32 Fixed Versus Flexible Exchange Rates 38 The Impossible Trinity 38 A Single Currency for Europe: The Euro 40 Emerging Markets and Regime Choices 42 GLOBAL FINANCE IN PRACTICE 2.3 Nigeria Undermines Currency Exchange Innovation 46 Summary Points 50 MINI-CASE: Iceland¡ªA Small Country in a Global Crisis 51 Questions 56 Problems 56 Internet Exercises 58 Chapter 3 The Balance of Payments 60 Fundamentals of BOP Accounting 61 The Accounts of the Balance of Payments 63 GLOBAL FINANCE IN PRACTICE 3.1 The Global Current Account Surplus 65 GLOBAL FINANCE IN PRACTICE 3.2 A Country's Net International Investment Position (NIIP) 68 BOP Impacts on Key Macroeconomic Rates 71 Trade Balances and Exchange Rates 72 Capital Mobility 75 Summary Points 80 MINI-CASE: Global Remittances 81 Questions 85 Problems 86 Internet Exercises 89 xiii _x00C_ PAGE \* roman Contents  PAGE \* roman Contents Chapter 4 Financial Goals and Corporate Governance 90 Ownership 90 GLOBAL FINANCE IN PRACTICE 4.1 Why Did Apple Start Paying a Dividend and Raising Debt? 97 Publicly Traded Versus Privately Held: The Global Shift 99 Corporate Governance 102 GLOBAL FINANCE IN PRACTICE 4.2 Why Did Dell Go Private? 102 GLOBAL FINANCE IN PRACTICE 4.3 Italian Cross-Shareholding and the End of the Salatto Buono 107 GLOBAL FINANCE IN PRACTICE 4.4 Is Good Governance Good Business Globally? 109 Summary Points 110 MINI-CASE: Volkswagen's Defeat Devices and Stakeholder Control 111 Questions 115 Problems 116 Internet Exercises 119 PART 2 Foreign Exchange Theory and Markets 121 Chapter 5 The Foreign Exchange Market 122 Functions of the Foreign Exchange Market 122 Structure of the Foreign Exchange Market 123 GLOBAL FINANCE IN PRACTICE 5.1 Bankhaus Herstatt and Herstatt Risk 124 GLOBAL FINANCE IN PRACTICE 5.2 Malware, Bangladesh Bank, and Banker's Hours¡ª2016 130 Transactions in the Foreign Exchange Market 131 GLOBAL FINANCE IN PRACTICE 5.3 The FX Global Code of Conduct 2016 131 Foreign Exchange Rates and Quotations 136 Summary Points 144 MINI-CASE: The Venezuelan Bolivar Black Market 144 Questions 147 Problems 148 Internet Exercises 151 Chapter 6 International Parity Conditions 152 Prices and Exchange Rates 153 GLOBAL FINANCE IN PRACTICE 6.1 The Immiseration of the North Korean People¡ªThe ¡°Revaluation¡± of the North Korean Won 155 Interest Rates and Exchange Rates 159 GLOBAL FINANCE IN PRACTICE 6.2 Was 2016 the Year of Textbook Failure? 161 Forward Rate as an Unbiased Predictor of the Future Spot Rate 169 GLOBAL FINANCE IN PRACTICE 6.3 Hungarian Mortgages 170 Prices, Interest Rates, and Exchange Rates in Equilibrium 171 Summary Points 173 MINI-CASE: Mrs. Watanabe and the Japanese Yen Carry Trade 173 Questions 176 Problems 177 Internet Exercises 181 Appendix: An Algebraic Primer to International Parity Conditions 183 Chapter 7 Foreign Currency Derivatives: Futures and Options 186 Foreign Currency Futures 187 Currency Options 189 GLOBAL FINANCE IN PRACTICE 7.1 Euro-Renminbi (EUR-RMB) Options Growth 191 GLOBAL FINANCE IN PRACTICE 7.2 The New Zealand Kiwi, Key, and Krieger 197 _x00C_ Option Pricing and Valuation 197 Summary Points 202 MINI-CASE: KiKos and the South Korean Won 203 Questions 205 Problems 206 Internet Exercises 208 Chapter 8 Interest Rate Risk and Swaps 210 Interest Rate Foundations 210 GLOBAL FINANCE IN PRACTICE 8.1 The Trouble with LIBOR 211 GLOBAL FINANCE IN PRACTICE 8.2 European Sovereign Debt 216 Interest Rate Risk 217 Interest Rate Futures and FRAs 220 Interest Rate Swaps 222 GLOBAL FINANCE IN PRACTICE 8.3 Procter & Gamble and Bankers Trust 230 Summary Points 231 MINI-CASE: Argentina and the Vulture Funds 231 Questions 236 Problems 236 Internet Exercises 240 Chapter 9 Foreign Exchange Rate Determination and Intervention 241 Exchange Rate Determination: The Theoretical Thread 242 GLOBAL FINANCE IN PRACTICE 9.1 Technical Analysis of the JPY/USD Rate (Jan 2011¨CFeb 2014) 245 Currency Market Intervention 246 GLOBAL FINANCE IN PRACTICE 9.2 Rules of Thumb for Effective Intervention 249 Disequilibrium: Exchange Rates in Emerging Markets 251 GLOBAL FINANCE IN PRACTICE 9.3 The European Monetary System's ¡°Snake in a Tunnel¡± 252 GLOBAL FINANCE IN PRACTICE 9.4 Was George Soros to Blame for the Asian Crisis? 255 Forecasting in Practice 257 Summary Points 261 MINI-CASE: Russian Ruble Roulette 262 Questions 264 Problems 265 Internet Exercises 269 PART 3 Foreign Exchange Exposure 271 Chapter 10 Transaction Exposure 272 Types of Foreign Exchange Exposure 272 Why Hedge? 273 GLOBAL FINANCE IN PRACTICE 10.1 Hedging and the German Automobile Industry 276 Transaction Exposure 276 Transaction Exposure Management: The Case of Ganado 278 GLOBAL FINANCE IN PRACTICE 10.2 Currency Losses at Greenpeace 281 GLOBAL FINANCE IN PRACTICE 10.3 Forward Rates and the Cost of Hedging 286 Risk Management in Practice 287 GLOBAL FINANCE IN PRACTICE 10.4 The Credit Crisis and Option Volatilities in 2009 288 Summary Points 289 MINI-CASE: China Noah Corporation 289 Questions 295 Problems 295 Internet Exercises 300 _x00C_ Chapter 11 Translation Exposure 301 Overview of Translation 301 Translation Methods 304 Ganado Corporation's Translation Exposure 308 GLOBAL FINANCE IN PRACTICE 11.1 When the Hedge Becomes the Problem 309 GLOBAL FINANCE IN PRACTICE 11.2 Foreign Subsidiary Valuation 312 Managing Translation Exposure 312 GLOBAL FINANCE IN PRACTICE 11.3 Foreign Currency Hedge Accounting 314 Summary Points 314 MINI-CASE: McDonald's, Hoover Hedges, and Cross-Currency Swaps 315 Questions 317 Problems 318 Internet Exercises 319 Chapter 12 Operating Exposure 321 A Multinational's Operating Exposure 321 GLOBAL FINANCE IN PRACTICE 12.1 Expecting the Devaluation¡ªFord and Venezuela 324 Measuring Operating Exposure: Ganado Germany 326 Strategic Management of Operating Exposure 330 GLOBAL FINANCE IN PRACTICE 12.2 Do Fixed Exchange Rates Increase Corporate Currency Risk in Emerging Markets? 331 GLOBAL FINANCE IN PRACTICE 12.3 The United Kingdom and Europe: Trans-Channel Currency Shifts 332 Proactive Management of Operating Exposure 333 GLOBAL FINANCE IN PRACTICE 12.4 Hedging Hogs: Risk Sharing at Harley-Davidson 336 Summary Points 339 MINI-CASE: Brexit and Rolls-Royce 339 Questions 343 Problems 344 Internet Exercises 347 PART 4 Financing the Global Firm 349 Chapter 13 Global Cost and Availability of Capital 350 Financial Globalization and Strategy 350 GLOBAL FINANCE IN PRACTICE 13.1 Ferrari's IPO¡ªThe Potential of the Prancing Horse 352 International Portfolio Theory and Diversification 354 The Role of International Portfolio Investors 360 GLOBAL FINANCE IN PRACTICE 13.2 Emerging Market Growth Companies¡ªIPOs and Corporate Governance 361 GLOBAL FINANCE IN PRACTICE 13.3 Culture and Investment Behavior 364 The Cost of Capital for MNEs Compared to Domestic Firms 364 Summary Points 368 MINI-CASE: Novo Industri A/S (Novo) 368 Questions 372 Problems 372 Internet Exercises 376 Chapter 14 Funding the Multinational Firm 377 Designing a Strategy to Source Capital Globally 378 Optimal Financial Structure 379 Raising Equity Globally 382 Depositary Receipts 385 GLOBAL FINANCE IN PRACTICE 14.1 The Planned Directed Equity Issue of PA Resources of Sweden 385 _x00C_ Private Placement 390 Raising Debt Globally 392 Financing Foreign Subsidiaries 393 GLOBAL FINANCE IN PRACTICE 14.2 Financial Structure of a Russian Joint Venture 398 Summary Points 399 MINI-CASE: Petrobr¨¢s of Brazil and the Cost of Capital 399 Questions 402 Problems 403 Internet Exercises 406 Chapter 15 Multinational Tax Management 407 GLOBAL FINANCE IN PRACTICE 15.1 The Impact of Tax on Business Decisions 408 15.1 Tax Principles and Practices 408 GLOBAL FINANCE IN PRACTICE 15.2 The Panama Papers 415 GLOBAL FINANCE IN PRACTICE 15.3 Offshore Profits and Dividend Repatriation 417 Google: An Illustrative Case of Profit Repositioning 425 GLOBAL FINANCE IN PRACTICE 15.4 Hewlett-Packard's Offshore Cash and Staggered Loan Program 426 Global Tax Competitiveness 427 Summary Points 429 MINI-CASE: Apple's Global iTax Strategy 430 Questions 434 Problems 435 Internet Exercises 437 Chapter 16 International Trade Finance 438 The Trade Relationship 438 Key Documents 443 GLOBAL FINANCE IN PRACTICE 16.1 Florence¡ªThe Birthplace of Trade Financing 445 Government Programs to Help Finance Exports 449 Trade Financing Alternatives 450 GLOBAL FINANCE IN PRACTICE 16.2 Factoring in Practice 452 Forfaiting 453 Summary Points 455 MINI-CASE: Crosswell International and Brazil 456 Questions 459 Problems 459 Internet Exercises 461 PART 5 Foreign Investments and Operations 463 Chapter 17 Foreign Direct Investment and Political Risk 464 The Foreign Direct Investment Decision 464 Structural Choices for Foreign Market Entry 465 GLOBAL FINANCE IN PRACTICE 17.1 Drugs, Public Policy, and the Death Penalty 471 Political Risk: Definition and Classification 471 Financial Impacts of Political Risk 472 Political Risk Mitigation 476 GLOBAL FINANCE IN PRACTICE 17.2 Selective Examples of Expropriation in the Global Oil and Gas Industry 477 GLOBAL FINANCE IN PRACTICE 17.3 Structuring Incentives in Foreign Direct Investments 482 Summary Points 482 MINI-CASE: Tengiz¡ªThe Definition of Political Risk 483 Questions 486 Internet Exercises 487 _x00C_xviii Contents xviii Contents Chapter 18 Multinational Capital Budgeting and Cross-Border Acquisitions 489 Complexities of Budgeting for a Foreign Project 490 Illustrative Case: Cemex Enters Indonesia 493 GLOBAL FINANCE IN PRACTICE 18.1 Venezuelan Currency and Capital Controls Force Devaluation of Business 503 Real Option Analysis 505 Project Financing 506 Cross-Border Mergers and Acquisitions 507 GLOBAL FINANCE IN PRACTICE 18.2 Values Change: GE Appliances and Electrolux 509 GLOBAL FINANCE IN PRACTICE 18.3 Statoil of Norway's Acquisition of Esso of Sweden 513 Summary Points 513 MINI-CASE: Elan and Royalty Pharma 514 Questions 518 Problems 518 Internet Exercises 521 Answers 523 Glossary 523 Index 523