List of illustrations                      xiii
About the author                                   xix
Preface                                            xxi
  PART I INTERNATIONAL FINANCIAL MARKETS AND       1   (32)
  ENVIRONMENT
    The World of International Finance             3   (30)
      Unique dimensions of international finance   3   (1)
      The benefits of studying international       3   (1)
      finance
      The growing importance of international      4   (13)
      finacne
      Topics covered in this book                  17  (5)
      Summary                                      22  (1)
      Review questions                             22  (1)
      Assignment problems                          22  (1)
      Bibliography                                 23  (1)
      Parallel material for case courses           23  (1)
      Appendix A                                   24  (4)
      Appendix B                                   28  (5)
  SECTION I THE MARKETS FOR FOREIGN EXCHANGE       33
    An Introduction to Exchange Rates              35  (23)
      The foreign banknote market                  38  (10)
      Direct versus indirect exchange and cross    48  (7)
      exchange rates
      Summary                                      55  (1)
      Review questions                             55  (1)
      Assignment problems                          56  (1)
      Bibliography                                 57  (1)
    Forward Exchange                               58  (16)
      What is forward foreign exchange?            58  (1)
      Forward exchange premiums and discounts      59  (2)
      Forward rates versus expected future spot    61  (1)
      rates
      Payoff profiles on forward exchange          61  (2)
      Outright forward exchange and swaps          63  (2)
      The flexibility of forward exchange          65  (2)
      Forward quotations                           67  (5)
      Summary                                      72  (1)
      Review questions                             72  (1)
      Assignment problems                          73  (1)
      Bibliography                                 73  (1)
    Currency futures and options markets           74
      Currency futures                             74  (7)
      Currency options                             81  (8)
      Forwards, futures, and options compared:     89  (3)
      a summary
      Summary                                      92  (1)
      Review questions                             92  (1)
      Assignment problems                          93  (1)
      Bibliography                                 94  (1)
      Appendix A                                   94
  SECTION II THE FUNDAMENTAL INTERNATIONAL         99  (143)
  PARITY CONDITIONS
    The Purchasing-Power Parity Principle          101 (12)
      The Law of one price                         101 (1)
      Absolute (or static) form of the PPP         102 (1)
      condition
      The relative (or dynamic) form of PPP        103 (1)
      Efficient markets (or speculative) form      104 (2)
      of PPP
      The empirical evidence on PPP                106 (1)
      Reasons for departures from PPP              106 (1)
      Statistical problems of evaluating PPP       107 (2)
      The practical importance of PPP              109 (1)
      Summary                                      110 (1)
      Review questions                             110 (1)
      Assignment problems                          110 (1)
      Bibliography                                 111 (2)
    Interest Parity                                113 (30)
      The investment and borrowing criteria        114 (6)
      The covered interest parity condition        120 (4)
      Combining PPP and interest parity            124 (2)
      Why covered interest differences persist     126 (13)
      Summary                                      139 (1)
      Review questions                             140 (1)
      Assignment problems                          140 (1)
      Bibliography                                 141 (2)
  SECTION III THE DETERMINATION OF EXCHANGE        143 (62)
  RATES
    The Balance of Payments                        145 (21)
      Influences on currency supply and demand     145 (1)
      Principles of balance-of-payments            146 (1)
      accounting
      Balance-of-payments entries and the          147 (8)
      factors that influence them
      Implications of the balance-of-payments      155 (4)
      accounting identity
      The net international investment position    159 (1)
      Objectives of economic policy                160 (3)
      Summary                                      163 (1)
      Review questions                             164 (1)
      Assignment problems                          164 (1)
      Bibliography                                 165 (1)
    Supply-And-Deman View of Exchange Rates        166 (21)
      Imports, exports, and exchange rates         167 (1)
      The factors affecting exchange rates         168 (9)
      The Stability of exchange rates              177 (3)
      Short-run versus long-run trade              180 (3)
      elasticities and the J curve
      Summary                                      183 (1)
      Review questions                             183 (1)
      Assigment problems                           184 (1)
      Bibliography                                 184 (1)
      Appendix A                                   184 (3)
    Asset-Based Theories of Exchange Rates         187 (18)
      Stock versus flow theories of exchange       187 (1)
      rates
      The monetary theory of exchange rates        187 (5)
      The asset approach to exchange rates         192 (1)
      The portfolio-balance approach to            193 (4)
      exchange rates
      Theories of exchange-rate volatility         197 (5)
      Summary                                      202 (1)
      Review questions                             202 (1)
      Assignment problems                          203 (1)
      Bibliography                                 203 (2)
  SECTION IV FIXED (PEGGED) AND FLEXIBLE           205 (76)
  EXCHANGE RATES
    Alternative Systems of Exchange Rates          207 (26)
      The classical gold standard system           207 (5)
      The Bretton Woods and dollar standards       212 (4)
      The European Monetary System (EMS)           216 (3)
      Hybrid systems of exchange rates             219 (3)
      Target zones                                 222 (3)
      Summary                                      225 (1)
      Review questions                             226 (1)
      Assignment Problems                          226 (1)
      Bibliography                                 227 (1)
      Appendix A                                   227 (4)
      Appendix B                                   231 (2)
    The International Financial System: Past,      233 (32)
    Present, and Future
      The past                                     233 (15)
      The present                                  248 (1)
      The future                                   248 (4)
      Degree of exchange-rate flexibility:         252 (9)
      fixed versus flexible exchange rates
      Summary                                      261 (1)
      Review questions                             262 (1)
      Assignment problems                          262 (1)
      Bibliography                                 263 (2)
    Macroeconomic Dimensions of International      265 (16)
    Finance
      Policy effectiveness                         265 (8)
      Policy conflicts                             273 (3)
      Summary                                      276 (1)
      Review questions                             276 (1)
      Assignment problems                          277 (1)
      Bibliography                                 277 (1)
      Appendix A                                   277 (4)
  PART II INTERNATIONAL FINANCIAL MANAGEMENT       281 (2)
  SECTION V FOREIGN EXCHANGE RISK AND EXPOSURE     283 (52)
    Managing Foreign Exchange Exposure and Risk    285 (25)
      The importance of understanding risk and     285 (1)
      exposure and measuring them
      The nature of exchange-rate risk and         285 (2)
      exposure
      Examples of foreign exchange exposure        287 (6)
      Exposure as a regression slope               293 (5)
      Definition of foreign exchange risk          298 (1)
      Exposure, risk, and the parity               299 (7)
      relationships
      Summary                                      306 (1)
      Review questions                             307 (1)
      Assignment problems                          307 (1)
      Bibliography                                 308 (2)
    Operating Exposure                             310 (25)
      Operations affected by exchange rates        310 (1)
      The exporter                                 311 (9)
      The importer                                 320 (3)
      Summary of effects of exchange rates on      323 (1)
      exporters and importers
      Effect of currency of invoicing and          324 (5)
      forward hedging
      Measuring exposure: an alternative           329 (2)
      approach
      Summary                                      331 (1)
      Review questions                             332 (1)
      Assignment problems                          332 (1)
      Bibliography                                 333 (2)
  SECTION VI HEDGING AND SPECULATION               335 (50)
    Hedging Risk and Exposure                      337 (23)
      Whether to hedge: managerial hedging         337 (4)
      versus shareholder hedging
      The cost of forward hedging                  341 (3)
      The benefit of forward hedging               344 (8)
      Financial engineering: payoff profiles of    352 (4)
      different hedging techniques
      Having a company hedging policy              356 (1)
      Summary                                      357 (1)
      Review questions                             357 (1)
      Assignment problems                          358 (1)
      Bibliography                                 359 (1)
    Exchange-Rate Forecasting and Speculation      360 (25)
      Speculation                                  360 (3)
      Market efficiency                            363 (4)
      Exchange-rate forecasting                    367 (13)
      Summary                                      380 (1)
      Review questions                             381 (1)
      Assignment problems                          381 (1)
      Bibliography                                 382 (3)
  SECTION VII INTERNATIONAL INVESTMENT AND         385 (114)
  FINANCING
    Cash Management                                387 (15)
      The objectives of cash management            387 (1)
      Investment and borrowing choices with        388 (2)
      transaction costs
      International dimensions of cash             390 (9)
      management
      Summary                                      399 (1)
      Review questions                             399 (1)
      Assignment problems                          399 (2)
      Bibliography                                 401 (1)
    Portfolio Investment                           402 (24)
      The benefits of international portfolio      402 (10)
      investment
      International capital asset pricing          412 (7)
      Bonds and International portfolio            419 (2)
      diversification
      Settlements of international portfolio       421 (2)
      investments
      Summary                                      423 (1)
      Review questions                             423 (1)
      Assignment problems                          424 (1)
      Bibliography                                 424 (2)
    International Dimensions of Capital            426 (26)
    Budgeting
      Selecting projects                           426 (2)
      Difficulties in evaluating foreign           428 (1)
      projects
      Cash flows: home versus foreign              429 (2)
      perspectives
      Discount rates: corporate versus             431 (1)
      shareholder perspectives
      The adjusted present value technique         431 (3)
      Selecting the appropriate discount rates     434 (2)
      An example                                   436 (4)
      Actual practice of capital budgeting         440 (1)
      Summary                                      441 (1)
      Review questions                             441 (1)
      Assignment problems                          442 (1)
      Bibliography                                 443 (1)
      Appendix A                                   443 (5)
      Appendix B                                   448 (4)
    The Growth of And Concerns About               452 (23)
    Multinationals
      The growth of multinational corporations     452 (9)
      Special issues facing multnational           461 (2)
      corporations: transfer pricing
      Special issues facing mulitinational         463 (5)
      corporations: country risk
      Problems and benefits from the growth of     468 (2)
      multinational corporations
      Transnational alliances                      470 (2)
      Summary                                      472 (1)
      Review questions                             473 (1)
      Assignment problems                          473 (1)
      Bibliography                                 474 (1)
    International Dimensions of Long-Term          475 (24)
    Financing
      Equity financing                             475 (5)
      Bond financing                               480 (7)
      Bank financing, direct loans, and the like   487 (3)
      Government and development-bank lending      490 (1)
      Other factors affecting the financing of     491 (1)
      subsidiaries
      Financial structure                          492 (3)
      Summary                                      495 (1)
      Review questions                             496 (1)
      Assignment problems                          496 (1)
      Bibliography                                 497 (2)
  SECTION VIII INSTITUTIONAL STRUCTURE OF          499 (42)
  INTERNATIONAL TRADE AND FINANCE
    Multinational Banking                          501 (20)
      The Eurodollar and offshore currency         501 (8)
      markets
      Multinational banking                        509 (9)
      Summary                                      518 (1)
      Review questions                             518 (1)
      Assignment problems                          519 (1)
      Bibliography                                 520 (1)
    Instruments and Institutions of                521 (20)
    International Trade
      Extra dimensions of international trade      521 (1)
      International trade involving letters of     521 (7)
      credit: Overview of a typical transaction
      The financing of international trade         528 (4)
      Countertrade                                 532 (2)
      The institutions regulating international    534 (4)
      trade
      Summary                                      538 (1)
      Review questions                             539 (1)
      Assignment problems                          539 (1)
      Bibliography                                 539 (2)
Glossary                                           541 (26)
index                                              567