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More About This Title Multinational Finance, Fifth Edition: Evaluating Opportunities, Costs, and Risks of Operations
English
Multinational Finance, Fifth Edition assumes the viewpoint of the financial manager of a multinational corporation with investment or financial operations in more than one country. This book provides a framework for evaluating the many opportunities, costs, and risks of multinational operations in a manner that allows readers to see beyond the math and terminology surrounding this field to realize the general principles of multinational financial management.
Logically organized and written in a clear, non-technical style, this book includes information on international finance topics such as foreign exchange, currency and derivatives markets, currency risk (transaction, operating, and translation) management, country risk, international taxation, capital structure, cost of capital, and international portfolio diversification. It also offers unique chapters on multinational treasury management, the rationale for hedging currency risks, options on real assets, international corporate governance, asset pricing, and portfolio management.
Emphasizes the managerial aspects of multinational finance with graphs, figures, and the use of numerous real-world examplesExpands on the treatment of parity disequilibria to include exchange rate expectations that differ from parity and a project's operating exposure to currency riskProvides an overview and comparison of the various derivative instruments and their use in risk hedgingContains valuable insights on valuation and management of a multinational corporation's investmentsIf you're looking for the best way to gain a firm understanding of multinational finance, look no further than the fifth edition of this classic text.
English
KIRT C. BUTLER is an Associate Professor in the Department of Finance and Director of Study Abroad for the Eli Broad College of Business at Michigan State University, where he teaches multinational finance and global strategy. His research has appeared in a variety of academic and practitioner journals, including the Journal of Finance, Journal of Accounting Research, Financial Analysts Journal, Journal of Portfolio Management, Journal of International Money and Finance, and the Journal of International Business Studies, among others. Professor Butler's academic research has been profiled in the New York Times, Time, and Money magazines, and on the CNN and CNBC websites. He has a PhD in finance and also holds an MBA in finance from the College of Business, an MS in computer science from the College of Engineering, and a BA in psychology from the Honors College, all from Michigan State University.
English
Preface xv
Acknowledgments xix
PART ONE The International Financial Environment
CHAPTER 1 An Introduction to Multinational Finance 3
Executive Summary 3
1.1 The Goals of the Multinational Corporation 3
1.2 The Challenges of Multinational Operations 6
1.3 The Opportunities of Multinational Operations 9
1.4 Financial Management of the Multinational Corporation 15
1.5 Summary 16
Key Terms 17
Conceptual Questions 17
CHAPTER 2 World Trade and the International Monetary System 19
Executive Summary 19
2.1 Integration of the World’s Markets 19
2.2 Balance-of-Payments Statistics 22
2.3 Exchange Rate Systems 25
2.4 A Brief History of the International Monetary System 28
2.5 The Global Financial Crisis of 2008 40
2.6 Summary 41
Key Terms 42
Conceptual Questions 42
Problems 43
Suggested Readings 43
CHAPTER 3 Foreign Exchange and Eurocurrency Markets 45
Executive Summary 45
3.1 Characteristics of Financial Markets 45
3.2 The Eurocurrency Market 46
3.3 The Foreign Exchange Market 51
3.4 Foreign Exchange Rates and Quotations 57
3.5 The Empirical Behavior of Exchange Rates 64
3.6 Summary 67
Key Terms 68
Conceptual Questions 69
Problems 69
Suggested Readings 71
CHAPTER 4 The International Parity Conditions and Their Consequences 73
Executive Summary 73
4.1 The Law of One Price 73
4.2 Exchange Rate Equilibrium 76
4.3 Interest Rate Parity and Covered Interest Arbitrage 80
4.4 Less Reliable International Parity Conditions 83
4.5 The Real Exchange Rate 88
4.6 Exchange Rate Forecasting 94
4.7 Summary 96
Key Terms 97
Conceptual Questions 98
Problems 98
Suggested Readings 102
Appendix 4A: Continuous Compounding 102
Problems 106
PART TWO Derivative Securities for Financial Risk Management
CHAPTER 5 Currency Futures and Futures Markets 109
Executive Summary 109
5.1 Financial Futures Exchanges 109
5.2 The Operation of Futures Markets 111
5.3 Futures Contracts 112
5.4 Forward versus Futures Market Hedges 115
5.5 Futures Hedges Using Cross-Exchange Rates 119
5.6 Hedging with Currency Futures 120
5.7 Summary 129
Key Terms 131
Conceptual Questions 131
Problems 132
Suggested Readings 133
CHAPTER 6 Currency Options and Options Markets 135
Executive Summary 135
6.1 What Is an Option? 135
6.2 Option Payoff Profiles 138
6.3 Currency Option Values Prior to Expiration 143
6.4 Hedging with Currency Options 147
6.5 Exchange Rate Volatility Revisited (Advanced) 152
6.6 Summary 158
Key Terms 159
Conceptual Questions 159
Problems 159
Suggested Readings 161
Appendix 6A: Currency Option Valuation 161
Key Terms 168
Problems 168
Suggested Readings 170
CHAPTER 7 Currency Swaps and Swaps Markets 171
Executive Summary 171
7.1 The Growth of the Swaps Market 171
7.2 Swaps as Portfolios of Forward Contracts 172
7.3 Currency Swaps 176
7.4 Interest Rate Swaps 183
7.5 Other Types of Swaps 187
7.6 Hedging the Swap Bank’s Exposure to Financial Price Risk 189
7.7 Summary 190
Key Terms 190
Conceptual Questions 191
Problems 191
Suggested Readings 193
PART THREE Managing the Risks of Multinational Operations
CHAPTER 8 Multinational Treasury Management 197
Executive Summary 197
8.1 Determining Financial Goals and Strategies 197
8.2 Managing the Corporation’s International Trade 199
8.3 Financing the Corporation’s International Trade 205
8.4 Managing the Multinational Corporation’s Cash Flows 209
8.5 Currency Risk Management in the Multinational Corporation 211
8.6 Summary 224
Key Terms 224
Conceptual Questions 225
Problems 225
Suggested Readings 226
Appendix 8A: The Rationale for Hedging Currency Risk 227
Key Terms 237
Conceptual Questions 237
Problems 237
Suggested Readings 238
CHAPTER 9 Managing Transaction Exposure to Currency Risk 239
Executive Summary 239
9.1 An Example of Transaction Exposure to Currency Risk 239
9.2 Managing Transaction Exposures Internally 240
9.3 Managing Transaction Exposure in Financial Markets 247
9.4 Treasury Management in Practice 255
9.5 Summary 260
Key Terms 261
Conceptual Questions 261
Problems 261
Suggested Readings 263
CHAPTER 10 Managing Operating Exposure to Currency Risk 265
Executive Summary 265
10.1 Operating Exposures to Currency Risk 265
10.2 The Exposure of Shareholders’ Equity 269
10.3 Managing Operating Exposure in the Financial Markets 274
10.4 Managing Operating Exposure through Operations 279
10.5 Pricing Strategy and the Firm’s Competitive Environment 281
10.6 Summary 285
Key Terms 286
Conceptual Questions 286
Problems 286
Suggested Readings 288
CHAPTER 11 Managing Translation Exposure and Accounting for Financial Transactions 291
Executive Summary 291
11.1 The Current Rate Method of Financial Accounting Standard No. 52 291
11.2 Corporate Hedging of Translation Exposure 294
11.3 Accounting for Financial Market Transactions 298
11.4 Accounting, Disclosure, and Corporate Hedging Activities 304
11.5 Summary 307
Key Terms 308
Conceptual Questions 308
Problems 309
Suggested Readings 311
PART FOUR Valuation and the Structure of Multinational Operations
CHAPTER 12 Foreign Market Entry and Country Risk Management 315
Executive Summary 315
12.1 Strategic Entry into International Markets 316
12.2 Country Risk Assessment 322
12.3 Strategies for Managing Country Risk 331
12.4 Protecting the Multinational’s Competitive Advantages 338
12.5 Summary 342
Key Terms 343
Conceptual Questions 343
Problems 344
Suggested Readings 345
CHAPTER 13 Multinational Capital Budgeting 347
Executive Summary 347
13.1 The Algebra of Multinational Capital Budgeting 347
13.2 An Example: Wendy’s Restaurant in Neverland 350
13.3 International Parity Disequilibria 354
13.4 Special Circumstances in Cross-Border Investments 360
13.5 Summary 367
Key Terms 368
Conceptual Questions 368
Problems 368
Suggested Readings 373
CHAPTER 14 Multinational Capital Structure and Cost of Capital 375
Executive Summary 375
14.1 Capital Structure and the Cost of Capital 375
14.2 Project Valuation and the Cost of Capital 380
14.3 The Cost of Capital on Multinational Operations 390
14.4 Sources of Funds for Multinational Operations 394
14.5 The International Evidence on Capital Structure 401
14.6 Summary 402
Key Terms 403
Conceptual Questions 404
Problems 405
Suggested Readings 408
CHAPTER 15 Taxes and Multinational Corporate Strategy 411
Executive Summary 411
15.1 The Objectives of National Tax Policy 411
15.2 Types of Taxation 413
15.3 U.S. Taxation of Foreign-Source Income 417
15.4 Taxes and Organizational Form 423
15.5 Transfer Pricing and Tax Planning 425
15.6 Taxes and the Location of Foreign Assets and Liabilities 428
15.7 Summary 432
Key Terms 433
Conceptual Questions 433
Problems 434
Suggested Readings 435
CHAPTER 16 Real Options and Cross-Border Investment Strategy 437
Executive Summary 437
16.1 Real Options and the Theory and Practice of Investment 437
16.2 Market Entry as a Simple Real Option 439
16.3 Uncertainty and the Value of the Option to Invest 447
16.4 Market Entry as a Compound Real Option 451
16.5 The Real Option Approach as a Complement to Net Present Value 454
16.6 Summary 457
Key Terms 458
Conceptual Questions 458
Problems 458
Suggested Readings 462
CHAPTER 17 Corporate Governance and the International Market for Corporate Control 465
Executive Summary 465
17.1 Corporate Governance 466
17.2 The International Market for Corporate Control 478
17.3 The International Evidence on Mergers and Acquisitions 484
17.4 Summary 488
Key Terms 489
Conceptual Questions 489
Problems 490
Suggested Readings 491
PART FIVE International Portfolio Investment and Asset Pricing
CHAPTER 18 International Capital Markets 495
Executive Summary 495
18.1 Domestic and International Bond Markets 495
18.2 Domestic and International Stock Markets 502
18.3 International Investment Vehicles 510
18.4 Share Prices in International Markets 515
18.5 Asset Allocation Policy and Investment Style 519
18.6 Cross-Border Financial Statement Analysis 521
18.7 Summary 524
Key Terms 526
Conceptual Questions 526
Problems 527
Suggested Readings 528
CHAPTER 19 International Portfolio Diversification 531
Executive Summary 531
19.1 The Algebra of Portfolio Diversification 531
19.2 Returns on Foreign Investments 541
19.3 The Benefits of International Portfolio Diversification 548
19.4 Home Bias 551
19.5 Summary 557
Key Terms 558
Conceptual Questions 558
Problems 559
Suggested Readings 560
CHAPTER 20 International Asset Pricing 563
Executive Summary 563
20.1 The International Capital Asset Pricing Model 563
20.2 Factor Models and Arbitrage Pricing Theory 568
20.3 Factor Models for International Assets 571
20.4 Momentum Strategies 580
20.5 Contemporary Asset Pricing Models 582
20.6 Summary 583
Key Terms 584
Conceptual Questions 584
Problems 585
Suggested Readings 588
Notes 591
Solutions to Even-Numbered Problems 607
Symbols and Acronyms 635
Useful Rules and Formulas 637
Useful Websites 641
Glossary 643
Index 663
