INSEAD Library

Includes bibliographies and index

Includes bibliographical references and index and glossary

Digitized

International Financial Management Contents Preface 1 Introduction The Multinational Firm, 1 / A History of Aggregate U.S. Foreign Investment, 4 / An Overview of the Text, 6 / Bibliography, 8 PART 1 THE INTERNATIONAL FINANCIAL ENVIRONMENT 2 International Transactions and the Financial Markets 10 The Concept of Balance of Payments, 10 / Accounting for International Transactions in the Balance of Payments, 12 / The Balance of Payments Statement, 17 / The Balance of Payments and the Exchange Markets, 20 / The Balance vi Contents of Indebtedness, 23 / Summary, 24 / Questions, 25 / Bibliography, 25 / Exercises on Balance of Payments Accounting, 26 3 International Monetary Agreements and Institutions 32 Why International Monetary Agreements Are Needed, 32 / Sources of Liquidity, 36 / Alternative Adjustment Mechanisms, 42 / The "Official" Current System, 47 / Summary, 49 / Questions, 51 / APPENDIX: Some International Associations, 51 / APPENDIX: Important Dates in the World Monetary System, 52 / Bibliography, 57 4 Money and Banking in International Markets 61 The International Transfer of Funds, 61 / Banking and the International Adjustment Process, 72 / Summary, 81 / Bibliography, 83 / Exercises on the International Transfer of Funds, 85 5 The Foreign Exchange Market: Nature and Relation to the Money Market 88 Institutions in the Foreign Exchange Market, 89 / Mechanics of Foreign Exchange Quotations, 91 / Relationship Between Foreign Exchange Markets and Money Markets, 99 / Summary, 106 / APPENDIX: Currency Futures Market, 107 / Bibliography, 109 / Exercises on Foreign Exchange Mechanics, 110 Contents vii 6 Exchange Rate and Interest Rate Determination Theories 114 General Equilibrium Theories, 115 / Theories of Partial Equilibrium of Supply and Demand, 122 / Summary, 137 / APPENDIX: Exchange Market and Money Market Equilibrium, 139 / Bibliography, 143 PART II FINANCING INTERNATIONAL OPERATIONS 7 International Cash Management: Foreign Exchange and Interest Rate Risks 147 The Nature of International Cash Management, 148 / Management of Foreign Exchange Risk, 150 / Management of Interest Rate Risk in One Currency, 163 / Management of Interest Rate Risk in Two Currencies, 170 / Summary, 177 / Questions, 179 / Bibliography, 180 / Treasurer's Problems, 180 / Dow CHEMICAL COMPANY, 192 / APPENDIX: Market Rates Relevant to Dow's Transactions in the Case, 202 / IFMG'S DAILY TRADING OPERATIONS, 207 / Exercises in Trading Foreign Exchange, 212 8 Financing International Trade 215 Alternative Financing Strategies, 215 / Special Documents Used in International Trade, 223 / Trade Financing from Third Parties, 234 / Foreign Exchange Risk and Credit Risk: Some Tradeoffs, 240 / Summary, 242 / Questions, 245 / Bibliography, 246 / NEW ENGLAND CHRISTMAS WREATHS, 248 / THE APandM TRADING COMPANY, 251 viii Contents 9 Financing Operations in the Multinational Enterprise 254 The Value of Money in International Finance, 255 / Eurocurrency Financing, 259 / The International Bond Market, 265 / Financing within Local Capital Markets, 277 / Cross-Border Financing in Controlled Domestic Markets, 280 / Summary, 281 / Questions, 282 / Bibliography, 283 / MULTINATIONAL BISQUITS, 284 / GREEN VALLEY CORPORATION, 292 10 Management of Exposure to Exchange Risk in the Foreign Enterprise 302 Measuring Exposure to Exchange Risk, 303 / Covering Exposure to Exchange Risk in Direct Investment, 315 / Summary, 322 / Questions, 322 / Bibliography, 324 / GIBSON CORPORATION, 326 11 Financial Control in the Multinational Enterprise 333 The Impact of Inflation and Exchange Fluctuations on Financial Statements, 334 / A Management Control System to Cope with Inflation and Exchange Fluctuations, 340 / Organization and Control of the Finance Function, 350 / Summary, 352 / APPENDIX: Comparative Accounting Practices, 353 / Questions, 363 / Bibliography, 364 / MARWICK HOME PRODUCTS, INC., ITALY, 366 / MANUCRAFT, INC. (A), 376 Contents ix 12 Financial Policy in the Multinational Enterprise 385 Market Efficiency and Financial Policy, 386 / Risk Analysis of Alternative Financial Policies, 391 / Summary, 404 / Questions, 407 / Bibliography, 408 / MANUCRAFT, INC. (B), 410 / FARMATEL, S.A., 1979, 414 PART III INVESTING IN FOREIGN OPERATIONS 13 Measuring Returns from International Projects 425 Why Invest Abroad? 426 / Cash Flow Determination, 431 / Evaluating International Cash Flows: An Example, 438 / Reinvestment of a Project's Cash Flows, 444 / Summary, 447 / Questions, 448 / Bibliography, 449 Appendix 1: Discounting Techniques to Evaluate Cash Flows: Net Present Value and Internal Rate of Return 415 Appendix 2: International Taxation 453 The Philosophy of Taxation, 454 / National Corporate Taxation Policies, 456 / U.S. Taxation of International Income of Corporations--Background, 457 / Tax Policies: An Overview, 460 / Section 162, 461 / Section 482, 461 / Section 861, 462 / Section 882, 462 / Tax x Contents Credits (Sections 901, 902, and so on), 463 / Limitations on Deferrals, 464 / Domestic International Sales Corporations (Sections 991994), 466 / Possessions Corporations (Section 936), 468 / Capital Gains, 468 / Exchange Gains and Losses, 469 / Withholding Taxes, 470 / Tax Changes: A Problem of Analysis, 471 / Exercises on Taxation of Foreign Income, 472 / Taxation References, 476 / ALPHA, S.A., 478 14 The Acceptance Criteria for International Projects 480 Cost of Capital: The Basic Theory, 480 / The Cost of Capital as the Required Rate of Return, 483 / Cost of Capital for a Foreign Project, 485 / Cash Flows to Parent versus Cash Flows to Project, 493 / The Cost of Equity as a Hurdle Rate, 494 / Summary, 497 / Questions, 408 / Bibliography, 498 / CHAOLANDIA'S SUPER-WIDGETS, 500 15 Risk Evaluation in Foreign Investments 505 Economic Risks, 505 / Political Risks, 507 / The Evaluation of Risk, 517 / Risk Analysis Simulation: An Extended Example, 523 / Summary, 533 / Bibliography, 534 / THE WORTHINGTON BOTTLING COMPANY, 536 / STEINBECK CORPORATION, 544 / BACKGROUND NOTATION ON THE PEOPLE'S REPUBLIC OF CHINA, 553 16 Portfolio Considerations in the Multinational Capital Budgeting Process 566 Theory of Financial Diversification, 567 / Developing Efficient Portfolios Contents xi of Projects, 570 / Implications of a World-Market Portfolio for Project Evaluation, 577 / Summary, 582 Appendix 1: Anti-Trust Legislation: 583 Strategy and Stricture Appendix 2: Empirical Research on Internationally Diversified Portfolios 586 Questions, 589 / Bibliography, 589 / THE SMYTHE POWER COMPANY, 593 17 Organizational Behavior, Business Strategy, and the Investment Decision 601 Decision-Making in a Business Organization, 601 / Business Strategy and the Investment Decision, 606 / Corporate Strategy and the Decision to Invest Abroad, 610 / Summary, 612 / Questions, 612 / Bibliography, 613 Glossary and Present Value Tables 615 Index 631