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International finance: financial management and the international economy

Author: Levi, Maurice D. Series: McGraw-Hill series in finance Publisher: McGraw-Hill, 1983.Language: EnglishDescription: 460 p. ; 24 cm.ISBN: 0070374813Type of document: BookBibliography/Index: Includes bibliographical references and index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG3881 .L455 1983
(Browse shelf)
Available 000393672
Total holds: 0

Includes bibliographical references and index


CONTENTS PREFACE 1 xv THE NATURE OF INTERNATIONAL RISKS AND THE PLAN OF THIS BOOK The Scope of lnternational Finance Benefits of Studying lnternational Finance Exchange Rate and Political Risks Exposure on Existing Foreign Assets/Liabilities / Exposure on Future Foreign Income I Complexities in Exchange Rate Risk / Foreign Exchange Hedging and Speculation / Political Risk Topics Covered in This Book Summary Bibliography 5 7 8 PART 1 2 INTRODUCING THE FOREIGN EXCHANGE MARKETS BANK NOTES AND SPOT MARKETS The Foreign Bank Note Market The Spot Foreign Exchange Market Delivery Period / Bank Settlement I Market Organization I Conventions for Spot Exchange Quotations The Concept of Triangular Arbitrage Triangular Arbitrage: Zero Transaction Costs I Triangular Arbitrage with Transaction Costs Summary Questions Bibliography 13 13 16 25 33 34 35 Vii viii CONTENTS 3 FORWARD EXCHANGE AND CURRENCY FUTURES Forward Exchange What Is Forward Exchange? I Forward Exchange versus Currency Futures / How Forward Exchange Works / Forward Exchange Premiums and Discounts / Conventions in Quoting Forward Exchange Currency Futures What Is a Currency Future? I The Link between the Futures and Forward Markets / Currency Options I Who Uses Forwards and Futures? Summary Questions Bibliography 36 36 45 51 52 53 PART 2 4 ECONOMIC ENVIRONMENT THE BALANCE OF INTERNATIONAL PAYMENTS The Importance of the Balance of Payments Statistics Defining the Balance of Payments The Current Account Balance The Capital Account Balance Regular Transactions ! Allocation of Special Drawing Rights (SDRs) / Settling Transactions / Statistical Discrepancy Other Countries' Balance of Payments Canadian Balance of lnternational Payments I United Kingdom Balance of Payments Interpreting the lnternational Financial Statistics Fixed Rates / Flexible Rates Goals of lnternational Economic Policy The Net lnternational Investment Position Summary Questions Bibliography Appendix 4.1: The U.S. Balance of Payments, 1979 and 1980 Appendix 412: A Review of Comparative Advantage Intuitive Explanation I An Example Appendix 4.3: Summary of Exchange Rate Systems 57 57 58 59 62 68 69 77 78 80 80 81 82 85 87 5 THE INTERNATIONAL FINANCIAL ENVIRONMENT WITH FIXED EXCHANGE RATES Adjustment via the Price Level The Go/d Standard Adjustment Mechanism / Gold 92 93 CONTENTS iX Standard with Paper Money ! The Gold-Exchange and Dollar Standards / Price-Level Adjustment under Gold-Exchange and Dollar Standards / Forecasting with Fixed Exchange Rates Income Adjustment Interest Adjustment Combined Effects The Monetary Approach to the Balance of Payments Why Study Automatic Adjustment Mechanisms? Summary Questions Bibliography Appendix 5.1: Gold Points Appendix 5.2: Implications of Monetary and Keyhesian Approaches to the Balance of Payments 6 THE FLEXIBLE EXCHANGE RATE ENVIRONMENT: BRINGING US UP TO DATE The Flexible Exchange Rate System How Flexible Exchange Rates Work / Flexible Exchange Rates and Stability I Forecasting with Flexible Exchange Rates Arguments for and against Fixed and Flexible Exchange Rates Arguments for Flexible Exchange Rates / The Case against Flexible Rates Intermediate Solutions Wider Bands I Crawling Peg Twentieth-Century lnternational Financial History The Story before Bretton Woods I Bretton Woods and the IMF I The lnternational System Since 1971 / Other Institutions Summary Questions Bibliography Appendix 6.1: The Condition for Stability in Foreign Exchange Markets Appendix 6.2: The Effects of Macroeconomic Policy Policy Effectiveness A Review of IS and LM I Introducing the Balance of Payments / Policy Effectiveness with Fixed Rates I Policy Effectiveness with Flexible Rates Policy Conflicts Questions on the Effectiveness of Policy Bibliography of the Effectiveness of Policy 103 107 108 112 114 114 116 117 117 121 122 123 131 138 139 145 146 147 148 150 130 158 160 160 X CONTENTS PART 3 SHORT-TERM BORROWING AND INVESTMENT DECISIONS WHERE TO BORROW AND INVEST-THE INTEREST RATE PARITY THEOREM The Investment and Borrowing Criteria Determining the Currency of Investment / An Example I Determining the Country from Which to Borrow / Borrowing and investing for Arbitrage Profit The Interest Parity Theorem Interest Parity: A Graphical Presentation Why Covered Interest Differences Persist Interest Parity and Transaction Costs / interest Parity and Political Risks I Taxes and Interest Parity I Liquidity Differences and interest Parity Summary Questions Bibliography 7 163 164 172 176 185 186 188 6 EURODOLLARS, EUROCURRENCIES, AND INTERNATIONAL BANKING What Are Eurodollars and Eurocurrencies? / The Nature of the Euromarket I Why Did Eurodollar Deposits Develop? I Determination of Eurodollar Interest Rates I Redepositing and Multiple Eurocurrency Expansion Organizational Features of lnternational Banking Correspondent Banking / Resident Representatives / Bank Agencies / Foreign Branches I Foreign Subsidiaries and Affiliates I Consortium Banks / Edge Act and Agreement Corporations / U.S. lnternational Banking Facilities (IBFs) / Petrodollar Recycling and Arab Banking Summary Questions Bibliography 189 205 211 211 212 9 AVOIDING AND TAKING EXCHANGE RISKS-HOW TO HEDGE AND SPECULATE 214 214 Hedging by Importers and Exporters 218 Documentation Involved in lnternational Trade 222 Other Importer and Exporter Hedging Techniques Selecting the Currency of Trade / Mixing the Currency of Trade / Borrowing and Lending Abroad ("Swaps") / CONTENTS Xi Buying Inputs in Export Markets The Export-Import Bank (Ex-lm Bank) The Best Ways to Speculate Spot Speculation I Forward Speculation Determining the Forward Exchange Rate Summary Questions Bibliography Appendix: lnternational Commercial and Financial Abbreviations Commercial Abbreviations Financial Abbreviations 10 227 228 231 236 237 238 238 238 240 241 242 MULTINATIONAL DIMENSIONS OF CASH MANAGEMENT Interest Disparity and Cash Management Absence of Forward Markets I The Reasons for Interest Disparity Multinationals and Working Capital Management Managing Multiple Cash Balance Positions Available Securities and Banking Efficiency I Advantages of Centralized Cash Management / Netting Payments / Netting with Leading and Lagging / Natural Hedging I An Example Transfer Pricing for Multinational Firms Strategic Considerations in Transfer Pricing / Practical Considerations in Transfer Pricing Summary Questions Bibliography Appendix: Gains from Centralized Cash Management 244 245 256 259 260 260 261 PART 4 REAL CHANGES IN EXCHANGE RATES: PRICING, PROFITABILITY, AND OUTPUT DECISIONS EXCHANGE RATE FORECASTING AND EFFICIENCY The Purchasing Power Parity Condition The Absolute Form of PPP / The Relative form of PPP I The Empirical Evidence on PPP I Reasons for Departures from PPP Combining PPP and Interest Parity Approximating the Interest Parity Condition I Combining the Two Parity Conditions 265 266 11 274 xii CONTENTS Methods of Forecasting Exchange Rates Forecasting with the PPP Condition / The Performance of the Exchange Rate Forecasting Services Efficiency of Foreign Exchange Markets Summary Questions Bibliography 12 REAL CHANGES IN EXCHANGE RATES Normal Effects of Exchange Rates Exchange Rates and Translation Risk Financial Assets and Liabilities I U.S. lnternational Accounting Principles I Financial Assets and Financial Statements I Genera/ Statement of Accounting Effects of Exchange Rates on Financial Assets/Liabilities / Fixed Assets and Real Changes in Exchange Rates I Defining the Real Change in Exchange Rates for Fixed Assets I Fixed Assets and Financial Statements Exchange Rates and Economic Risk Measuring Changes in lnternational Competitiveness / An intuitive Explanation and Summary lnternational versus Domestic Finance Summary Questions Bibliography 13 ECONOMIC EXPOSURE The Exporter Competitive Markets in the Short Run / Long-Run Effects; Imported inputs / The Case of imperfect Competition I Analysis in Foreign Currency Units The Importer Analysis in Home Currency Units / Analysis in Foreign Currency Units I Imported inputs I Summary of Effects of Exchange Rates on Exporters and importers Effect of Currency of Invoicing and Forward Hedging The Exporter with Exposed Inputs / The Exporter with Receivables Exposure I The Importer / A Reminder: Importance of Lags I An Example Summary Questions . Bibliography Appendix: Exchange Rates and the Exporter and ImporterA Mathematical Treatment 278 292 295 296 297 299 299 301 315 317 320 320 321 323 324 338 343 348 349 350 350 CONTENTS Xiii The Exporter Effects in Terms of Home Currency (Dollars) I Effects in Terms of Foreign Currency (British Pounds) The Importer Effects in Terms of Home Currency (Dollars) / Effects in Terms of Foreign Currency (British Pounds) 350 354 PART 5 14 CAPlTAL DECISIONS INTERNATIONAL ASPECTS OF LONG-TERM FINANCING Bond Financing The Criteria / Borrowing with Foreign-Source Income / Other Debt Capital Considerations: Foreign Bonds versus Eurobonds / Political Risks and Bond Financing Equity Financing lnternational Diversification of Security Portfolios The Capital Asset Pricing Model (CAPM) Bank Financing, Direct Loans, Etc. Back-to-Back or Parallel Loans I Credit Swaps Other Factors Affecting Financial Structure Capital Structure in Different Countries Summary Questions Bibliography Appendix: Comparing the Bond-Life Borrowing Costs 361 362 371 377 379 381 383 384 385 387 389 390 391 393 396 15 CAPlTAL BUDGETING AND MULTINATIONAL ENTERPRISE Difficulties in Evaluating Foreign Projects Factors Affecting Investors' Cash Flows The Adjusted Present Value Technique Selecting the Appropriate Discount Rates Using Real interest Rates and Today's (Real) Cash Flows and Exchange Rates I Discount Rates for Different Iterns Political Risk Methods of Reducing Political Risk ! The Measurement of Political Risk An Example Actual Practice of Capital Budgeting The Growth of Multinational Corporations Reasons for the Growth of MNCs I Problems Arising from Multinational Enterprises Summary 402 406 412 412 418 xiv CONTENTS Questions Bibliography Appendix 15.1: A Survey of lnternational Taxation Taxes Faced in lnternational Trade Corporate Taxes / Value-Added Tax (VAT) / Import Duties / Withholding Taxes / Branch versus Subsidiary Taxes Organizational Structures for Reducing Taxes Domestic International Sales Corporations (DISCS) / 80-20 Subsidiaries / Internal Pricing I Tax Havens Tax Rates in Various Countries Appendix 15.2: Political Risk and Discount Rates 419 420 421 421 424 426 444 INDEXES Name index Subject index 447

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