Fundamentals of Multinational Finance, Sixth Edition
By Michael H. Moffett, Arthur I. Stonehill and David K. Eiteman
Contents:
PART 1 Global Financial Environment 21
Chapter 1 Multinational Financial Management: Opportunities and Challenges 22
1.1 Financial Globalization and Risk 23
1.2 The Global Financial Marketplace 24
GLOBAL FINANCE IN PRACTICE 1.1 The Rocketing Swiss Franc 28
1.3 The Theory of Comparative Advantage 31
1.4 What Is Different About International Financial Management? 32
GLOBAL FINANCE IN PRACTICE 1.2 The Peso, Dollar, Yen—and Pokémon Go 33
1.5 The Globalization Process 35
GLOBAL FINANCE IN PRACTICE 1.3 ESG Investment 39
Summary Points 39
MINI-CASE: Crowdfunding Kenya 40
Questions 43
Problems 43
Internet Exercises 47
Chapter 2 The International Monetary System 48
2.1 History of the International Monetary System 48
GLOBAL FINANCE IN PRACTICE 2.1 Hammering Out an Agreement at Bretton Woods 51
GLOBAL FINANCE IN PRACTICE 2.2 Supranational Currencies 52
2.2 Fixed Versus Flexible Exchange Rates 58
2.3 The Impossible Trinity 58
2.4 A Single Currency for Europe: The Euro 60
2.5 Emerging Markets and Regime Choices 62
GLOBAL FINANCE IN PRACTICE 2.3 Bulgarian Currency Board and Accession to the Euro Zone 66
Summary Points 70
MINI-CASE: Iceland—A Small Country in a Global Crisis 71
Questions 76
Problems 76
Internet Exercises 78
Chapter 3 The Balance of Payments 80
3.1 Fundamentals of BOP Accounting 81
3.2 The Accounts of the Balance of Payments 83
GLOBAL FINANCE IN PRACTICE 3.1 The Global Current Account Surplus 85
GLOBAL FINANCE IN PRACTICE 3.2 Germany’s Net International Investment Position (NIIP) 88
3.3 BOP Impacts on Key Macroeconomic Rates 91
3.4 Trade Balances and Exchange Rates 92
3.5 Capital Mobility 95
Summary Points 100
MINI-CASE: Global Remittances 101
Questions 105
Problems 106
Internet Exercises 109
Chapter 4 Financial Goals and Corporate Governance 110
4.1 Ownership 110
GLOBAL FINANCE IN PRACTICE 4.1 Why Did Apple Start Paying a Dividend and Raising Debt? 117
4.2 Publicly Traded Versus Privately Held: The Global Shift 119
4.3 Corporate Governance 122
GLOBAL FINANCE IN PRACTICE 4.2 Why Did Dell Go Private? 122
GLOBAL FINANCE IN PRACTICE 4.3 Italian Cross-Shareholding and the End of the Salatto Buono 127
GLOBAL FINANCE IN PRACTICE 4.4 Corporate Governance Models 129
Summary Points 130
MINI-CASE: Volkswagen’s Defeat Devices and Stakeholder Control 131
Questions 135
Problems 136
Internet Exercises 139
PART 2 Foreign Exchange Theory and Markets 141
Chapter 5 The Foreign Exchange Market 142
5.1 Functions of the Foreign Exchange Market 142
5.2 Structure of the Foreign Exchange Market 143
GLOBAL FINANCE IN PRACTICE 5.1 Bankhaus Herstatt and Herstatt Risk 144
GLOBAL FINANCE IN PRACTICE 5.2 Malware, Bangladesh Bank, and Banker’s Hours—2016 150
5.3 Transactions in the Foreign Exchange Market 151
GLOBAL FINANCE IN PRACTICE 5.3 The FX Global Code of Conduct 2016 151
5.4 Foreign Exchange Rates and Quotations 156
Summary Points 164
MINI-CASE: The Venezuelan Bolivar Black Market 164
Questions 167
Problems 168
Internet Exercises 171
Chapter 6 International Parity Conditions 172
6.1 Prices and Exchange Rates 173
GLOBAL FINANCE IN PRACTICE 6.1 The Immiseration of the North Korean People—The “Revaluation”
of the North Korean
Won 175
6.2 Interest Rates and Exchange Rates 179
GLOBAL FINANCE IN PRACTICE 6.2 Was 2016 the Year of Textbook Failure? 181
6.3 Forward Rate as an Unbiased Predictor of the Future Spot Rate 189
GLOBAL FINANCE IN PRACTICE 6.3 Mortgages and the Swiss Franc 190
6.4 Prices, Interest Rates, and Exchange Rates in Equilibrium 191
Summary Points 193
MINI-CASE: Mrs. Watanabe and the Japanese Yen Carry Trade 193
Questions 196
Problems 197
Internet Exercises 201
Appendix: An Algebraic Primer to International Parity Conditions 203
Chapter 7 Foreign Currency Derivatives: Futures and Options 206
7.1 Foreign Currency Futures 207
7.2 Currency Options 209
GLOBAL FINANCE IN PRACTICE 7.1 Euro-Renminbi (EUR-RMB) Options Growth 211
GLOBAL FINANCE IN PRACTICE 7.2 The New Zealand Kiwi, Key, and Krieger 217
7.3 Option Pricing and Valuation 217
Summary Points 222
MINI-CASE: KiKos and the South Korean Won 223
Questions 225
Problems 226
Internet Exercises 228
Chapter 8 Interest Rate Risk and Swaps 230
8.1 Interest Rate Foundations 230
GLOBAL FINANCE IN PRACTICE 8.1 The Trouble with LIBOR 231
GLOBAL FINANCE IN PRACTICE 8.2 European Sovereign Debt 236
8.2 Interest Rate Risk 237
8.3 Interest Rate Futures and FRAs 240
8.4 Interest Rate Swaps 242
GLOBAL FINANCE IN PRACTICE 8.3 Procter & Gamble and Bankers Trust 250
Summary Points 251
MINI-CASE: Argentina and the Vulture Funds 251
Questions 256
Problems 256
Internet Exercises 260
Chapter 9 Foreign Exchange Rate Determination and Intervention
261
9.1 Exchange Rate Determination: The Theoretical Thread 262
GLOBAL FINANCE IN PRACTICE 9.1 Technical Analysis of the JPY/USD Rate (Jan 2011–Feb 2014) 265
9.2 Currency Market Intervention 266
GLOBAL FINANCE IN PRACTICE 9.2 Rules of Thumb for Effective Intervention 269
9.3 Disequilibrium: Exchange Rates in Emerging Markets 271
GLOBAL FINANCE IN PRACTICE 9.3 The European Monetary System’s “Snake in a Tunnel” 272
GLOBAL FINANCE IN PRACTICE 9.4 Was George Soros to Blame for the Asian Crisis? 275
9.4 Forecasting in Practice 277
Summary Points 281
MINI-CASE: Russian Ruble Roulette 282
Questions 284
Problems 285
Internet Exercises 289
PART 3 Foreign Exchange Exposure 291
Chapter 10 Transaction Exposure 292
10.1 Types of Foreign Exchange Exposure 292
10.2 Why Hedge? 293
GLOBAL FINANCE IN PRACTICE 10.1 Hedging and the German Automobile Industry 296
10.3 Transaction Exposure 296
10.4 Transaction Exposure Management: The Case of Aidan 298
GLOBAL FINANCE IN PRACTICE 10.2 Currency Losses at Greenpeace 301
GLOBAL FINANCE IN PRACTICE 10.3 Forward Rates and the Cost of Hedging 306
10.5 Risk Management in Practice 307
GLOBAL FINANCE IN PRACTICE 10.4 The Credit Crisis and Option Volatilities in 2009 308
Summary Points 309
MINI-CASE: China Noah Corporation 309
Questions 315
Problems 315
Internet Exercises 320
Chapter 11 Translation Exposure 321
11.1 Overview of Translation 321
11.2 Translation Methods 324
11.3 Aidan Corporation’s Translation Exposure 328
GLOBAL FINANCE IN PRACTICE 11.1 When the Hedge Becomes the Problem 329
GLOBAL FINANCE IN PRACTICE 11.2 Foreign Subsidiary Valuation 332
11.4 Managing Translation Exposure 332
GLOBAL FINANCE IN PRACTICE 11.3 Foreign Currency Hedge Accounting 334
Summary Points 334
MINI-CASE: McDonald’s, Hoover Hedges, and Cross-Currency Swaps 335
Questions 337
Problems 338
Internet Exercises 339
Chapter 12 Operating Exposure 341
12.1 A Multinational’s Operating Exposure 341
GLOBAL FINANCE IN PRACTICE 12.1 Expecting the Devaluation—Ford and Venezuela 344
12.2 Measuring Operating Exposure: Aidan Turkey 346
12.3 Strategic Management of Operating Exposure 350
GLOBAL FINANCE IN PRACTICE 12.2 Do Fixed Exchange Rates Increase Corporate Currency Risk
in Emerging
Markets?
351
GLOBAL FINANCE IN PRACTICE 12.3 The United Kingdom and Europe: Trans-Channel Currency Shifts 352
12.4 Proactive Management of Operating Exposure 353
GLOBAL FINANCE IN PRACTICE 12.4 Hedging Hogs: Risk Sharing at Harley-Davidson 356
Summary Points 359
MINI-CASE: Brexit and Rolls-Royce 359
Questions 363
Problems 364
Internet Exercises 367
PART 4 Financing the Global Firm 369
Chapter 13 Global Cost and Availability of Capital 370
13.1 Financial Globalization and Strategy 370
GLOBAL FINANCE IN PRACTICE 13.1 Ferrari’s IPO—The Potential of the Prancing Horse 372
13.2 International Portfolio Theory and Diversification 374
13.3 The Role of International Portfolio Investors 380
GLOBAL FINANCE IN PRACTICE 13.2 Emerging Market Growth Companies—IPOs and Corporate
Governance 381
GLOBAL FINANCE IN PRACTICE 13.3 Culture and Investment Behavior 384
13.4 The Cost of Capital for MNEs Compared to Domestic Firms 384
Summary Points 388
MINI-CASE: Novo Industri A/S (Novo) 388
Questions 392
Problems 392
Internet Exercises 396
Chapter 14 Funding the Multinational Firm 397
14.1 Designing a Strategy to Source Capital Globally 398
14.2 Optimal Financial Structure 399
14.3 Raising Equity Globally 402
14.4 Depositary Receipts 405
GLOBAL FINANCE IN PRACTICE 14.1 Evolution of Global Financing in the Shale Sector 405
14.5 Private Placement 410
14.6 Raising Debt Globally 412
14.7 Financing Foreign Subsidiaries 413
GLOBAL FINANCE IN PRACTICE 14.2 Islamic Finance 414
GLOBAL FINANCE IN PRACTICE 14.3 Financial Structure of a Russian Joint Venture 418
Summary Points 419
MINI-CASE: Petrobrás of Brazil and the Cost of Capital 419
Questions 422
Problems 423
Internet Exercises 426
Chapter 15 Multinational Tax Management 427
GLOBAL FINANCE IN PRACTICE 15.1 The Impact of Tax on Business Decisions 428
15.1 Tax Principles and Practices 428
GLOBAL FINANCE IN PRACTICE 15.2 The Panama Papers 435
GLOBAL FINANCE IN PRACTICE 15.3 Offshore Profits and Dividend Repatriation 437
15.3 Google: An Illustrative Case of Profit Repositioning 445
GLOBAL FINANCE IN PRACTICE 15.4 Hewlett-Packard’s Offshore Cash and Staggered Loan Program 446
15.4 Global Tax Competitiveness 447
Summary Points 449
MINI-CASE: Apple’s Global iTax Strategy 450
Questions 454
Problems 455
Internet Exercises 457
Chapter 16 International Trade Finance 458
16.1 The Trade Relationship 458
16.2 Key Documents 463
GLOBAL FINANCE IN PRACTICE 16.1 Florence—The Birthplace of Trade Financing 465
16.3 Government Programs to Help Finance Exports 469
16.4 Trade Financing Alternatives 470
GLOBAL FINANCE IN PRACTICE 16.2 Factoring in Practice 472
16.5 Forfaiting 473
Summary Points 475
MINI-CASE: Crosswell International and Brazil 476
Questions 479
Problems 479
Internet Exercises 481
PART 5 Foreign Investments and Operations 483
Chapter 17 Foreign Direct Investment and Political Risk 484
17.1 The Foreign Direct Investment Decision 484
17.2 Structural Choices for Foreign Market Entry 485
GLOBAL FINANCE IN PRACTICE 17.1 Drugs, Public Policy, and the Death Penalty 491
17.3 Political Risk: Definition and Classification 491
17.4 Financial Impacts of Political Risk 492
17.5 Political Risk Mitigation 496
GLOBAL FINANCE IN PRACTICE 17.2 Selective Examples of Expropriation in the Global Oil and Gas Industry 497
GLOBAL FINANCE IN PRACTICE 17.3 Structuring Incentives in Foreign Direct Investments 502
Summary Points 502
MINI-CASE: Tengiz—The Definition of Political Risk 503
Questions 506
Internet Exercises 507
Chapter 18 Multinational Capital Budgeting and Cross-Border Acquisitions 509
18.1 Complexities of Budgeting for a Foreign Project 510
18.2 Illustrative Case: Cemex Enters Indonesia 513
GLOBAL FINANCE IN PRACTICE 18.1 Venezuelan Currency and Capital Controls Force Devaluation of Business 523
18.3 Real Option Analysis 525
18.4 Project Financing 526
18.5 Cross-Border Mergers and Acquisitions 527
GLOBAL FINANCE IN PRACTICE 18.2 Values Change: GE Appliances and Electrolux 529
GLOBAL FINANCE IN PRACTICE 18.3 Statoil of Norway’s Acquisition of Esso of Sweden 533
Summary Points 533
MINI-CASE: Elan and Royalty Pharma 534
Questions 538
Problems 538
Internet Exercises 541
Answers A-1
Glossary G-1
Index I-1