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Multinational financial management

Author: Shapiro, Alan C. Publisher: Wiley, 2006.Edition: 8th ed.Language: EnglishDescription: 745 p. ; 26 cm.ISBN: 0471725838Type of document: BookBibliography/Index: Includes bibliographical references and index and glossary
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Book Europe Campus
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Includes bibliographical references and index and glossary

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Multinational Financial Management Table of Contents PREFACE PART I ENVIRONMENT OF INTERNATIONAL FINANCIAL MANAGEMENT 1 1 INTRODUCTION: MULTINATIONAL ENTERPRISE AND MULTINATIONAL FINANCIAL MANAGEMENT 2 Chapter Learning Objectives 2 Key Terms 2 1.1 The Rise of the Multinational Corporation 4 Evolution of the Multinational Corporation 9 Raw-Materials Seekers 10 Market Seekers 11 Cost Minimizers 12 A Behavioral Definition of the Multinational Corporation 15 The Global Manager 17 1.2 The Internationalization of Business and Finance 18 Political and Labor Union Concerns about Global Competition 19 Consequences of Global Competition 23 1.3 Multinational Financial Management: Theory and Practice 29 Criticisms of the Multinational Corporation 29 Functions of Financial Management 30 Theme of This Book 31 Relationship to Domestic Financial Management 32 Arbitrage 32 Market Efficiency 32 Capital Asset Pricing 33 The Importance of Total Risk 33 The Global Financial Marketplace 34 The Role of the Financial Executive in an Efficient Market 35 1.4 Outline of the Book 35 Environment of International Financial Management 35 Foreign Exchange and Derivatives Markets 36 Foreign Exchange Risk Management 36 Financing the Multinational Corporation 36 Foreign Investment Analysis 36 Multinational Working Capital Management 37 Questions 37 Internet Resources 38 Internet Exercises 38 Appendix lA 39 2 THE DETERMINATION OF EXCHANGE RATES 44 Chapter Learning Objectives 44 Key Terms 44 2.1 Setting the Equilibrium Spot Exchange Rate 45 Demand for a Currency 45 Supply of a Currency 46 Factors that Affect the Equilibrium Exchange Rate 47 Relative Inflation Rates 47 Relative Interest Rates 48 Relative Economic Growth Rates 48 Political and Economic Risk 48 Calculating Exchange Rate Changes 50 2.2 Expectations and the Asset Market Model of Exchange Rates 52 The Nature of Money and Currency Values 56 Central Bank Reputations and Currency Values 58 Price Stability and Central Bank Independence 59 Currency Boards 63 Dollarization 66 Expectations and Currency Values 68 2.3 The Fundamentals of Central Bank Intervention 70 How Real Exchange Rates Affect Relative Competitiveness 70 Foreign Exchange Market Intervention 72 Mechanics of Intervention 74 Sterilized versus Unsterilized Intervention 75 The Effects of Foreign Exchange Market Intervention 76 2.4 The Equilibrium Approach to Exchange Rates 78 Disequilibrium Theory and Exchange Rate Overshooting 79 The Equilibrium Theory of Exchange Rates and Its Implications 80 2.5 Summary and Conclusions 82 Questions 83 Problems 84 Internet Resources 85 Internet Exercises 86 Bibliography 86 3 THE INTERNATIONAL MONETARY SYSTEM 87 Chapter Learning Objectives 87 Key Terms 87 3.1 Alternative Exchange Rate Systems 88 Free Float 89 Managed Float 89 Target-Zone Arrangement 91 Fixed-Rate System 92 The Current System of Exchange Rate Determination 92 3.2 A Brief History of the International Monetary System 93 The Classical Gold Standard 96 How the Classical Gold Standard Worked in Practice: 1821-1914 98 The Gold Exchange Standard and Its Aftermath: 1925-1944 98 Competitive Devaluations 99 Bretton Woods Conference and the Postwar Monetary System 99 Role of the IMF 99 Role of the World Bank 100 Role of the Bank for International Settlements 100 The Bretton Woods System: 1946-1971 101 The Post­Bretton Woods System: 1971 to the Present 102 OPEC and the Oil Crisis of 1973-1974 102 U.S. Dollar Crisis of 1977-1978 103 The Rising Dollar: 1980-1985 103 The Sinking Dollar: 1985-1987 103 Recent History: 1988-2005 104 Assessment of the Floating-Rate System 105 Currency Volatility Has Increased 106 Requirements for Currency Stability 106 3.3 The European Monetary System and Monetary Union 107 The Exchange Rate Mechanism 107 Lessons from the European Monetary System 107 The Currency Crisis of September 1992 108 The Catalyst 108 The High Cost of Intervention 108 The Exchange Rate Mechanism Is Abandoned in August 1993 109 The Catalyst 109 Governments Surrender to the Market 110 A Postmortem on the EMS 110 European Monetary Union 111 Maastricht Convergence Criteria 111 Launch of the Euro 112 EMU and the European Welfare State 112 Consequences of EMU 114 Performance of the Euro 115 Optimum Currency Area 119 3.4 Emerging Market Currency Crises 122 Transmission Mechanisms 122 Trade Links 122 Financial System 122 Debt Policy 122 Origins of Emerging Market Crises 122 Moral Hazard 122 Fundamental Policy Conflict 123 Policy Proposals for Dealing with Emerging Market Crises 123 Currency Controls 123 Freely Floating Currency 123 Permanently Fixed Exchange Rate 124 Better Information 124 3.5 Summary and Conclusions 125 Questions 126 Problems 126 Internet Resources 127 Internet Exercises 127 Bibliography 128 4 PARITY CONDITIONS IN INTERNATIONAL FINANCE AND CURRENCY FORECASTING 129 Chapter Learning Objectives 129 Key Terms 129 4.1 Arbitrage and the Law of One Price 130 4.2 Purchasing Power Parity 134 The Lesson of Purchasing Power Parity 138 Expected Inflation and Exchange Rate Changes 140 The Monetary Approach 140 Empirical Evidence 141 4.3 The Fisher Effect 144 Empirical Evidence 147 Adding Up Capital Markets Internationally 152 4.4 The International Fisher Effect 152 Empirical Evidence 154 4.5 Interest Rate Parity Theory 155 Empirical Evidence 161 4.6 The Relationship Between the Forward Rate and the Future Spot Rate 161 Empirical Evidence 164 4.7 Currency Forecasting 165 Requirements for Successful Currency Forecasting 165 Market-Based Forecasts 166 Forward Rates 166 Interest Rates 166 Model-Based Forecasts 166 Fundamental Analysis 168 Technical Analysis 168 Model Evaluation 169 Forecasting Controlled Exchange Rates 171 4.8 Summary and Conclusions 172 Questions 174 Problems 175 Internet Resources Internet Exercises Bibliography 178 External Policies 203 Current-Account Deficits and Unemployment 203 The Bottom Line on Current-Account Deficits and Surpluses 205 5.4 Summary and Conclusions 206 Questions 207 Problems 208 Internet Resources 209 Internet Exercises 210 179 5 THE BALANCE OF PAYMENTS AND INTERNATIONAL ECONOMIC LINKAGES Chapter Learning Objectives 179 Key Terms 179 5.1 Balance-of-Payments Categories 180 Current Account 182 Capital Account 184 Financial Account 184 Balance-ofPayments Measures 185 The Missing Numbers 186 5.2 The International Flow of Goods, Services, and Capital 186 Domestic Savings and Investment and the Financial Account 187 The Link Between the Current and Financial Accounts 187 Government Budget Deficits and Current-Account Deficits 191 The Current Situation 193 5.3 Coping with the Current-Account Deficit 195 Currency Depreciation 196 Lagged Effects 197 J-Curve Theory 197 Devaluation and Inflation 199 U.S. Deficits and the Demand for U.S. Assets 199 Protectionism 200 Ending Foreign Ownership of Domestic Assets 200 Boosting the Savings Rate 202 6 COUNTRY RISK ANALYSIS 211 Chapter Learning Objectives 211 Key Terms 211 6.1 Measuring Political Risk 212 Political Stability 213 Economic Factors 214 Subjective Factors 215 Political Risk and Uncertain Property Rights 216 Capital Flight 220 6.2 Economic and Political Factors Underlying Country Risk 222 Fiscal Irresponsibility 223 Monetary Instability 225 Controlled Exchange Rate System 226 Wasteful Government Spending 226 Resource Base 227 Country Risk and Adjustment to External Shocks 227 Market-Oriented versus Statist Policies 228 Why Capitalism Works 228 Statist Policies Constrain Growth 229 Why Statist Policies Persist 229 Key Indicators of Country Risk and Economic Health 230 Market-Oriented Policies Work 232 Market-Oriented Reform in Latin America 233 Obstacles to Economic Reform 235 6.3 Country Risk Analysis in International Banking 237 Country Risk and the Terms of Trade 237 The Government's Cost/Benefit Calculus 238 Lessons from the International Debt Crisis 239 Onset of the Crisis 239 Reform Takes Hold 239 Debt Relief 239 The Crisis Ends 240 Lessons from Successful Economic Reform 240 6.4 Summary and Conclusions 241 Questions 241 Problems 241 Internet Resources 243 Internet Exercises 243 Bibliography 243 PART II FOREIGN EXCHANGE AND DERIVATIVES MARKETS 245 7 THE FOREIGN EXCHANGE MARKET 246 Internet Resources 272 Internet Exercises 273 Bibliography 273 Chapter Learning Objectives 246 Key Terms 246 7.1 Organization of the Foreign Exchange Market 247 The Participants 249 The Clearing System 251 Electronic Trading 252 Size 253 7.2 The Spot Market 255 Spot Quotations 255 Transaction Costs 258 Cross Rates 259 Currency Arbitrage 261 Settlement Date 263 Exchange Risk 263 The Mechanics of Spot Transactions 264 7.3 The Forward Market 265 Forward Quotations 267 Exchange Risk 269 Cross Rates 269 Forward Contract Maturities 270 7.4 Summary and Conclusions 271 Questions 271 Problems 271 8 CURRENCY FUTURES AND 274 OPTIONS MARKETS Chapter Learning Objectives 274 Key Terms 274 8.1 Futures Contracts 275 Forward Contract versus Futures Contract 276 Advantages and Disadvantages of Futures Contracts 281 Arbitrage Between the Futures and Forward Markets 281 8.2 Currency Options 281 Market Structure 282 Using Currency Options 285 Currency Spread 289 Knockout Options 290 Option Pricing and Valuation 291 Using Forward or Futures Contracts versus Options Contracts 293 Futures Options 298 8.3 Reading Currency Futures and Options Prices 300 8.4 Summary and Conclusions 302 Questions 302 Problems 302 Internet Resources 303 Internet Exercises 304 Bibliography 304 Appendix 8A 304 Appendix 8B 307 Currency Swaps 316 Interest Rate/Currency Swaps 318 Dual Currency Bond Swaps 323 Economic Advantages of Swaps 324 9.2 Interest Rate Forwards and Futures 325 Forward Forwards 325 Forward Rate Agreement 326 Eurodollar Futures 327 9.3 Structured Notes 329 Inverse Floaters 330 Callable Step-Up Note 331 Step-Down Coupon Note 331 9.4 Summary and Conclusions 332 Questions 332 Problems 333 Internet Resources 334 Internet Exercises 334 Bibliography 334 9 SWAPS AND INTEREST RATE DERIVATIVES 311 Chapter Learning Objectives 311 Key Terms 311 9.1 Interest Rate and Currency Swaps 312 Interest Rate Swaps 312 The Classic Swap Transaction 313 Cost Savings Associated with Swaps 314 PART III FOREIGN EXCHANGE RISK MANAGEMENT 335 10 MEASURING AND MANAGING TRANSLATION AND TRANSACTION EXPOSURE 336 Chapter Learning Objectives 336 Key Terms 336 10.1 Alternative Measures of Foreign Exchange Exposure 337 Translation Exposure 337 Transaction Exposure 338 Operating Exposure 339 10.2 Alternative Currency Translation Methods 339 Current/Noncurrent Method 339 Monetary/Nonmonetary Method 340 Temporal Method 340 Current Rate Method 340 10.3 Transaction Exposure 341 10.4 Designing a Hedging Strategy 343 Objectives 344 Costs and Benefits of Standard Hedging Techniques 347 Costs of Hedging 347 Benefits of Hedging 348 Exposure Netting 350 Centralization Versus Decentralization 350 Managing Risk Management 351 Accounting for Hedging and FASB 133 352 10.5 Managing Translation Exposure 353 Funds Adjustment 354 Evaluating Alternative Hedging Mechanisms 355 10.6 Managing Transaction Exposure 356 Forward Market Hedge 357 The True Cost of Hedging 357 Money-Market Hedge 359 Risk Shifting 361 Pricing Decisions 362 Exposure Netting 363 Currency Risk Sharing 365 Currency Collars 367 Cross-Hedging 367 Foreign Currency Options 370 Using Options to Hedge Bids 371 Using Options to Hedge Other Currency Risks 372 Options Versus Forward Contracts 373 10.7 Summary and Conclusions 375 Questions 376 Problems 377 Internet Resources 379 Internet Exercises 379 Bibliography 380 Appendix 10A 380 Competitive Effects of Real Exchange Rate Changes 390 11.2 The Economic Consequences of Exchange Rate Changes 394 Transaction Exposure 394 Operating Exposure 395 11.3 Identifying Economic Exposure 399 Aspen Skiing Company 399 Petroleos Mexicanos 400 Toyota Motor Company 401 11.4 Calculating Economic Exposure 402 Spectrum's Accounting Exposure 402 Spectrum's Economic Exposure 402 Case Analysis 407 11.5 An Operational Measure of Exchange Risk 407 Limitations 408 11.6 Managing Operating Exposure 409 Marketing Management of Exchange Risk 409 Market Selection 409 Pricing Strategy 409 Product Strategy 412 Production Management of Exchange Risk 413 Input Mix 413 Shifting Production Among Plants 414 Plant Location 415 Raising Productivity 416 Planning for Exchange Rate Changes 417 Financial Management of Exchange Risk 419 11.7 Summary and Conclusions 425 Questions 426 Problems 427 Internet Resources 429 Internet Exercises 429 Bibliography 429 11 MEASURING AND MANAGING ECONOMIC EXPOSURE 385 Chapter Learning Objectives 385 Key Terms 385 11.1 Foreign Exchange Risk and Economic Exposure 386 Real Exchange Rate Changes and Exchange Risk 388 Importance of the Real Exchange Rate 389 Inflation and Exchange Risk 389 PART IV FINANCING THE MULTINATIONAL CORPORATION 431 462 12 INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS 432 13 THE EUROMARKETS Chapter Learning Objectives 462 Key Terms 462 13.1 The Eurocurrency Market 462 Modern Origins 463 Eurodollar Creation 464 Eurocurrency Loans 465 Terms 466 Multicurrency Clauses 467 Relationship Between Domestic and Eurocurrency Money Markets 468 Interest Differentials 468 Eurocurrency Spreads 468 Euromarket Trends 469 13.2 Eurobonds 470 Swaps 471 Links Between the Domestic and Eurobond Markets 471 Placement 471 Currency Denomination 471 Interest Rates on FixedRate Eurobonds 471 Interest Rates on FloatingRate Eurobonds 472 Eurobond Retirement 473 Ratings 474 Rationale for Existence of Eurobond Market 474 Chapter Learning Objectives 432 Key Terms 432 12.1 Corporate Sources and Uses of Funds 433 Financial Markets versus Financial Intermediaries 434 Financial Systems and Corporate Governance 434 Globalization of Financial Markets 438 12.2 National Capital Markets as International Financial Centers 441 International Financial Markets 445 Foreign Access to Domestic Markets 445 The Foreign Bond Market 446 The Foreign Bank Market 447 The Foreign Equity Market 447 Globalization of Financial Markets Has Its Downside 453 12.3 Development Banks 453 The World Bank Group 454 IBRD 454 IFC 454 IDA 455 Regional and National Development Banks 455 Regional Development Banks 455 National Development Banks 456 Private-Sector Alternatives 456 12.4 Project Finance 458 12.5 Summary and Conclusions 459 Questions 460 Problem 460 Internet Resources 461 Internet Exercises 461 Bibliography 461 Eurobonds versus Eurocurrency Loans 476 13.3 Note Issuance Facilities and Euronotes 477 Note Issuance Facilities versus Eurobonds 480 Euro-Medium-Term Notes 480 Reasons for Success 480 Costs of a Euro-MTN Program 481 Characteristics 481 Risks 482 13.4 Euro-Commercial Paper 482 13.5 The Asiacurrency Market 483 13.6 Summary and Conclusions 484 Questions 484 Problems 485 Internet Resources 485 Internet Exercises 486 Bibliography 486 14 THE COST OF CAPITAL FOR FOREIGN INVESTMENTS 487 Chapter Learning Objectives 487 Key Terms 487 14.1 The Cost of Equity Capital 488 14.2 The Weighted Average Cost of Capital for Foreign Projects 489 14.3 Discount Rates for Foreign Investments 491 Evidence from the Stock Market 492 Key Issues in Estimating Foreign Project Discount Rates 493 Proxy Companies 494 Local Companies 494 Proxy Industry 495 Adjusted U.S. Industry Beta 496 The Relevant Base Portfolio 496 The Impact of Globalization on the Cost of Capital 497 Empirical Evidence 499 A Recommendation 500 The Relevant Market Risk Premium 500 Recommendations 502 14.4 The Cost of Debt Capital 502 Annual Exchange Rate Change 504 Using Sovereign Risk Spreads 504 14.5 Establishing a Worldwide Capital Structure 505 Foreign Subsidiary Capital Structure 506 Political Risk Management 508 Currency Risk Management 509 Leverage and Foreign Tax Credits 509 Leasing and Taxes 509 Cost-Minimizing Approach to Global Capital Structure 510 Joint Ventures 511 14.6 Valuing Low-Cost Financing Opportunities 511 Taxes 512 Zero-Coupon Bonds 513 Debt versus Equity Financing 514 Government Credit and Capital Controls 514 Government Subsidies and Incentives 515 14.7 Summary and Conclusions 518 Questions 519 Problems 519 Internet Resources 520 Internet Exercises 520 Bibliography ANALYSIS 520 PART V FOREIGN INVESTMENT 523 15 INTERNATIONAL PORTFOLIO INVESTMENT 524 Chapter Learning Objectives 524 Key Terms 524 15.1 The Risks and Benefits of International Equity Investing 525 International Diversification 526 Correlations and the Gains from Diversification 528 Recent Correlations 532 Investing in Emerging Markets 535 Barriers to International Diversification 540 15.2 International Bond Investing 543 15.3 Optimal International Asset Allocation 544 15.4 Measuring the Total Return from Foreign Portfolio Investing 545 Bonds 545 Stocks 546 15.5 Measuring Exchange Risk on Foreign Securities 547 Hedging Currency Risk 548 15.6 Summary and Conclusions 548 Questions 549 Problems 549 Internet Resources 551 Internet Exercises 551 Bibliography 551 Foreign Direct Investment and Survival 565 Cost Reduction 565 Economies of Scale 565 Multiple Sourcing 567 Knowledge Seeking 567 Keeping Domestic Customers 569 16.4 Designing a Global Expansion Strategy 571 1. Awareness of Profitable Investments 571 2. Selecting a Mode of Entry 572 3. Auditing the Effectiveness of Entry Modes 572 4. Using Appropriate Evaluation Criteria 573 5. Estimating the Longevity of a Competitive Advantage 574 16.5 Summary and Conclusions 575 Questions 575 Problems 576 Internet Resources 577 Internet Exercises 577 Bibliography 577 16 CORPORATE STRATEGY AND FOREIGN DIRECT INVESTMENT 553 Chapter Learning Objectives 553 Key Terms 553 16.1 The Process of Overseas Expansion 554 Exporting 554 Overseas Production 555 Licensing 556 16.2 Theory of the Multinational Corporation 557 Product and Factor Market Imperfections 557 Financial Market Imperfections 558 16.3 The Strategy of Multinational Enterprise 559 Innovation-Based Multinationals 559 The Mature Multinationals 560 The Senescent Multinationals 563 17 CAPITAL BUDGETING FOR THE MULTINATIONAL CORPORATION 578 Chapter Learning Objectives 578 Key Terms 578 17.1 Basics of Capital Budgeting 579 Net Present Value 579 Incremental Cash Flows 580 Cannibalization 580 Sales Creation 581 Opportunity Cost 581 Transfer Pricing 581 Fees and Royalties 582 Getting the Base Case Right 582 Accounting for Intangible Benefits 583 Alternative Capital-Budgeting Frameworks 584 An Adjusted Present Value Approach 584 17.2 Issues in Foreign Investment Analysis 586 Parent versus Project Cash Flows 586 A Three-Stage Approach 586 Estimating Incremental Project Cash Flows 587 Tax Factors 587 Political and Economic Risk Analysis 588 Adjusting the Discount Rate or Payback Period 588 Adjusting Expected Values 589 Exchange Rate Changes and Inflation 589 17.3 Foreign Project Appraisal: The Case of International Diesel Corporation 590 Estimation of Project Cash Flows 591 Initial Investment Outlay 591 Financing IDC-U.K. 592 Interest Subsidies 593 Sales and Revenue Forecasts 593 Production Cost Estimates 594 Projected Net Income 594 Additions to Working Capital 594 Terminal Value 596 Estimated Project Present Value 596 Estimation of Parent Cash Flows 597 Loan Payments 597 Remittances to IDC-U.S. 598 Earnings on Exports to IDC-U.K. 597 Estimated Present Value of Project to IDC-U.S. 598 Lost Sales 598 17.4 Political Risk Analysis 600 Expropriation 600 Blocked Funds 601 17.5 Growth Options and Project Evaluation 602 17.6 Summary and Conclusions 606 Questions 607 Problems 607 Internet Resources 608 Internet Exercises 609 Appendix 17A 609 PART VI MULTINATIONAL WORKING CAPITAL MANAGEMENT 6 1 5 18 FINANCING FOREIGN TRADE 616 Chapter Learning Objectives 616 Key Terms 616 18.1 Payment Terms in International Trade 617 Cash in Advance 617 Letter of Credit 618 Online Alternatives 622 Draft 623 Consignment 625 Open Account 626 Banks and Trade Financing 627 Collecting Overdue Accounts 627 18.2 Documents in International Trade 628 Bill of Lading 628 Commercial Invoice 629 Insurance Certificate 629 Consular Invoice 629 18.3 Financing Techniques in International Trade 630 Bankers' Acceptances 630 Creating an Acceptance 630 Terms of Acceptance Financing 630 Evaluating the Cost of Acceptance Financing 632 Discounting 632 Factoring 633 Evaluating the Cost of Factoring 633 Forfaiting 634 18.4 Government Sources of Export Financing and Credit Insurance 634 Export Financing 634 Export-Import Bank 635 Private Export Funding Corporation 637 Trends 637 Export-Credit Insurance 637 Foreign Credit Insurance Association 638 Taking Advantage of GovernmentSubsidized Export Financing 638 Export Financing Strategy 639 Import Financing Strategy 639 18.5 Countertrade 640 18.6 Summary and Conclusions 643 Questions 644 Problems 644 Internet Resources 645 Internet Exercises 645 Bibliography 645 Payments Netting in International Cash Management 651 Bilateral and Multilateral Netting 651 Information Requirements 652 Foreign Exchange Controls 654 Analysis 654 Management of the Short-Term Investment Portfolio 655 Portfolio Guidelines 656 Optimal Worldwide Cash Levels 656 Evaluation and Control 658 Cash Planning and Budgeting 659 Multinational Cash Mobilization 659 Bank Relations 661 19.2 Accounts Receivable Management 663 Credit Extension 663 19.3 Inventory Management 665 Production Location and Inventory Control 665 Advance Inventory Purchases 666 Inventory Stockpiling 666 19.4 Short-Term Financing 666 Key Factors in Short-Term Financing Strategy 667 Short-Term Financing Objectives 668 Short-Term Financing Options 669 Intercompany Financing 669 Local Currency Financing 669 Bank Loans 669 Commercial Paper 673 Calculating the Dollar Costs of Alternative Financing Options 673 Case 1: No Taxes 674 Case 2: Taxes 675 19.5 Summary and Conclusions 677 Questions 678 Problems 679 Internet Resources 680 Internet Exercises 680 Bibliography 680 19 C U R R E N T A S S E T M A N A G E M E N T AND SHORT-TERM FINANCING 646 Chapter Learning Objectives 646 Key Terms 646 19.1 International Cash Management 647 Organization 647 Collection and Disbursement of Funds 648 20 MANAGING THE MULTINATIONAL FINANCIAL SYSTEM 681 Chapter Learning Objectives 681 Key Terms 681 20.1 The Value of the Multinational Financial System 682 Mode of Transfer 683 Timing Flexibility 684 Value 684 20.2 Intercompany Fund-Flow Mechanisms: Costs and Benefits 686 Tax Factors3 686 Transfer Pricing 687 Tax Effects 687 Tariffs 688 Exchange Controls 691 Joint Ventures 691 Disguising Profitability 691 Evaluation and Control 691 Reinvoicing Centers 691 Fees and Royalties 692 Leading and Lagging 694 Shifting Liquidity 694 Advantages 696 Government Restrictions 696 Intercompany Loans 696 Bach-to-Bach Loans 696 Parallel Loans 699 Dividends 700 Tax Effects 700 Financing Requirements 701 Exchange Controls 701 Joint Ventures 703 Equity versus Debt 703 20.3 Designing a Global Remittance Policy 706 Prerequisites 707 Information Requirements 708 Behavioral Consequences 708 20.4 Summary and Conclusions 710 Questions 711 Problems 711 Internet Resources 712 Internet Exercises 712 Bibliography 713 GLOSSARY INDEX 715 733

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