You are previewing International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website.
O'Reilly logo
International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

Book Description

A thorough introduction to corporate finance from a renowned professor of finance and banking

As globalization redefines the field of corporate finance, international and domestic finance have become almost inseparably intertwined. It's increasingly difficult to understand what is happening in capital markets without a firm grasp of currency markets, the investment strategies of sovereign wealth funds, carry trade, and foreign exchange derivatives products. International Corporate Finance offers thorough coverage of the international monetary climate, including Islamic finance, Asian banking, and cross-border mergers and acquisitions. Additionally, the book offers keen insight on global capital markets, equity markets, and bond markets, as well as foreign exchange risk management and how to forecast exchange rates.

  • Offers a comprehensive discussion of the current state of international corporate finance

  • Provides simple rules and pragmatic answers to key managerial questions and issues

  • Includes case studies and real-world decision-making situations

  • For anyone who wants to understand how finance works in today's hyper-connected global economy, International Corporate Finance is an insightful, practical guide to this complex subject.

    Table of Contents

    1. Cover Page
    2. Title Page
    3. Copyright
    4. Dedication
    5. Contents
    6. Preface
      1. WHAT MAKES THIS BOOK UNIQUE
      2. AUDIENCE FOR THIS BOOK
      3. MEETING THE CHALLENGE OF INTERNATIONAL CORPORATE FINANCE
      4. WHAT IS IN THE BOOK?
      5. WEBSITE AND ONLINE RESOURCES
    7. Acknowledgments
    8. About the Author
    9. CHAPTER 1: What Is International Corporate Finance?
      1. THE UNEVEN REACH OF GLOBALIZATION
      2. THE RISE OF THE MULTINATIONAL CORPORATION
      3. WHAT IS DIFFERENT ABOUT INTERNATIONAL CORPORATE FINANCE?
      4. RISKS IN THE WONDERLAND OF INTERNATIONAL FINANCE
      5. INTERNATIONALIZATION AND THE LOCUS OF THE FINANCE FUNCTION
      6. THE INTERNATIONAL CONTROL CONUNDRUM
      7. EXPLOITING THE MULTINATIONAL ENTERPRISE SYSTEM
      8. SUMMARY
      9. QUESTIONS FOR DISCUSSION
      10. REFERENCES
    10. PART One: The International Monetary Environment
      1. CHAPTER 2: Exchange Rates Regimes
        1. SOME FIRST PRINCIPLES ABOUT EXCHANGE RATE DETERMINATION
        2. WORLD MAP OF EXCHANGE RATE REGIMES: THE FLEXIBILITY × CONVERTIBILITY SPACE
        3. FLOATING EXCHANGE RATES
        4. STABILIZED OR PEGGED EXCHANGE RATES
        5. CONTROLLED EXCHANGE RATES
        6. SUMMARY
        7. APPENDIX 2A: THE PURCHASING POWER PARITY HYPOTHESIS
        8. QUESTIONS FOR DISCUSSION
        9. PROBLEMS
        10. REFERENCES
      2. CHAPTER 3: Yesterday and Yesteryear
        1. CHRONOLOGY OF THE INTERNATIONAL MONETARY SYSTEM
        2. THE GOLD STANDARD (1878–1914, 1925–1931)
        3. THE BRETTON WOODS SYSTEM (1944–1971)
        4. MANAGED FLOATING EXCHANGE RATES (1973–)
        5. EUROPEAN MONETARY SYSTEM AND THE EUROPEAN CURRENCY UNIT (1979–1999)
        6. EMERGING MARKETS CURRENCY REGIMES AND CRISES
        7. EUROPEAN MONETARY UNION AND THE BIRTH OF THE EURO (1999–PRESENT)
        8. TODAY AND TOMORROW: THE CURRENT MAP OF EXCHANGE RATES
        9. SUMMARY
        10. QUESTIONS FOR DISCUSSION
        11. PROBLEMS
        12. REFERENCES
      3. CHAPTER 4: The Balance of Payments
        1. FUNDAMENTALS OF BALANCE OF INTERNATIONAL PAYMENTS ACCOUNTING
        2. CURRENT ACCOUNT
        3. CAPITAL ACCOUNT
        4. OFFICIAL RESERVE ACCOUNT
        5. STATISTICAL DISCREPANCIES: ERRORS AND OMISSIONS
        6. BALANCE OF PAYMENTS AND THE FOREIGN EXCHANGE MARKET
        7. DEBTOR VERSUS CREDITOR NATIONS
        8. LINKING THE BALANCE OF PAYMENTS TO NATIONAL INCOME
        9. SUMMARY
        10. QUESTIONS FOR DISCUSSION
        11. PROBLEMS
        12. REFERENCES
    11. PART Two: The Foreign Exchange Market and Currency Derivatives
      1. CHAPTER 5: The Foreign Exchange Market
        1. HOW FOREX IS TRADED: THE INSTITUTIONAL FRAMEWORK
        2. FOREIGN EXCHANGE PRODUCTS
        3. EXCHANGE RATE QUOTATIONS
        4. SUMMARY
        5. QUESTIONS FOR DISCUSSION
        6. PROBLEMS
        7. REFERENCES
      2. CHAPTER 6: Interest Rate Arbitrage and Parity
        1. INTEREST RATE ARBITRAGE THEOREM
        2. INTEREST RATE PARITY
        3. UNCOVERED INTEREST RATE ARBITRAGE AND THE CARRY TRADE
        4. SUMMARY
        5. APPENDIX 6A: INTEREST RATE PARITY AND ASYMMETRIC TAXATION
        6. APPENDIX 6B: THE LINKAGES BETWEEN INTEREST, INFLATION, AND EXCHANGE RATES
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
      3. CHAPTER 7: Currency Futures, Options, and Swaps
        1. A BRIEF HISTORY OF DERIVATIVES
        2. CURRENCY FUTURES
        3. CURRENCY OPTIONS
        4. RISK PROFILE OF CURRENCY OPTIONS
        5. OPTION STRATEGIES
        6. PUT-CALL PARITY THEOREM
        7. THE VALUATION OF CURRENCY OPTIONS
        8. DERIVATIVES AND ZERO-PREMIUM OPTIONS
        9. CURRENCY SWAPS
        10. INTEREST RATE SWAPS
        11. SUMMARY
        12. QUESTIONS FOR DISCUSSION
        13. PROBLEMS
        14. REFERENCES
    12. PART Three: International Financing
      1. CHAPTER 8: The International Financial Sector and the Dynamics of Global Capital Markets
        1. FINANCING AS A GLOBAL PROCUREMENT DECISION
        2. THE FINANCIAL SYSTEM AND FINANCIAL (DIS)INTERMEDIATION
        3. SECURITIZATION AND THE (LOWER) COST OF CONSUMER FINANCING
        4. DEREGULATION
        5. MAPPING THE FINANCIAL SYSTEM/CAPITAL MARKET EMERGENCE PROCESS
        6. SUMMARY
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
      2. CHAPTER 9: Sourcing Equity Globally
        1. A GRAND TOUR OF EQUITY MARKETS
        2. GLOBAL EQUITY FINANCING AS A PROCUREMENT DECISION
        3. INTERNATIONALIZING THE COST OF CAPITAL: THE LANDMARK CASE OF NOVO INDUSTRI
        4. WHY DO FIRMS CROSS-LIST?
        5. HOW TO SOURCE EQUITY GLOBALLY
        6. SUMMARY
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
      3. CHAPTER 10: Sourcing Debt from Global Bond Markets
        1. THE INTERNATIONAL DEBT PROCUREMENT DECISION
        2. GRAND TOUR OF THE GLOBAL DEBT MARKET
        3. COST OF FOREIGN CURRENCY DEBT FINANCING
        4. DEBT REFINANCING
        5. THE INTERNATIONAL DEBT FINANCING CONUNDRUM
        6. SUMMARY
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
      4. CHAPTER 11: International Trade Financing
        1. A BRIEF HISTORY OF INTERNATIONAL TRADE
        2. THE TRILOGY OF RISKS IN EXPORTING
        3. MANAGING CREDIT RISK
        4. MANAGING CURRENCY RISK
        5. MANAGING COUNTRY RISK
        6. THE MECHANICS OF TRADE FINANCING WITH A LETTER OF CREDIT
        7. FINANCING EXPORTS
        8. PRE-EXPORT FINANCING
        9. GOVERNMENT-SPONSORED EXPORT CREDIT AGENCIES
        10. SUMMARY
        11. QUESTIONS FOR DISCUSSION
        12. PROBLEMS
      5. CHAPTER 12: Asian Finance and Banking
        1. ASIAN FINANCE: COMMON HISTORICAL ROOTS, DIVERSE PATHS
        2. ADAPTIVE RESPONSES: CRISES AND INSTITUTIONAL CHANGE IN ASIAN FINANCE
        3. BUSINESS ORGANIZATION, CORPORATE OWNERSHIP, AND GOVERNANCE
        4. CAPITAL MARKET DEVELOPMENT
        5. CAPITAL STRUCTURE AND THE COST OF CAPITAL
        6. PERFORMANCE, VALUE, AND THE PRACTICE OF CORPORATE FINANCE
        7. SUMMARY
        8. QUESTIONS FOR DISCUSSION
        9. REFERENCES
      6. CHAPTER 13: Islamic Banking and Finance
        1. THE UNDERLYING PRINCIPLES OF ISLAMIC FINANCE
        2. THE EVOLUTION OF ISLAMIC FINANCE
        3. ISLAMIC FINANCING PRODUCTS
        4. SHARIAH-COMPLIANT ASSET MANAGEMENT
        5. ISLAMIC BANKING
        6. ISLAMIC FINANCE AND THE GLOBAL FINANCIAL MELTDOWN
        7. SUMMARY
        8. QUESTIONS FOR DISCUSSION
        9. REFERENCES
    13. PART Four: Managing Foreign Exchange Risk
      1. CHAPTER 14: The Case for Foreign Exchange Risk Management
        1. DEFINING FOREIGN EXCHANGE RISK MANAGEMENT AND ITS OBJECTIVES
        2. CAN HEDGING CURRENCY RISK INCREASE THE VALUE OF THE FIRM?
        3. WHEN IS HEDGING CURRENCY RISK IRRELEVANT?
        4. FROM HEDGING TO MANAGING CURRENCY RISK
        5. THE BUILDING BLOCKS OF FOREIGN EXCHANGE RISK MANAGEMENT
        6. SUMMARY
        7. APPENDIX 14A: FOREIGN EXCHANGE RISK MANAGEMENT: WHAT DO FIRMS DO?
        8. QUESTIONS FOR DISCUSSION
        9. REFERENCES
      2. CHAPTER 15: Forecasting Exchange Rates
        1. MARKET-BASED FORECASTS
        2. MODEL-BASED FORECASTS: TECHNICAL VERSUS ECONOMETRIC MODELING APPROACHES
        3. COMPOSITE FORECASTS
        4. HOW TO USE CURRENCY FORECASTS
        5. SUMMARY
        6. APPENDIX 15A: FORECASTING PEGGED YET ADJUSTABLE EXCHANGE RATES
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
      3. CHAPTER 16: Managing Transaction Exposure
        1. MEASURING TRANSACTION EXPOSURE
        2. THE MECHANICS OF HEDGING TRANSACTION EXPOSURE
        3. HEDGING AND FINANCING INTERNATIONAL TRADE
        4. ELIMINATING FOREIGN EXCHANGE RATE RISK IN LONG-TERM CONTRACTS
        5. EXCHANGE RATE RISK IN INTERNATIONAL BIDDING
        6. HOW MUCH TO HEDGE TRANSACTION EXPOSURE
        7. SUMMARY
        8. QUESTIONS FOR DISCUSSION
        9. PROBLEMS
        10. REFERENCES
      4. CHAPTER 17: Managing Translation Exposure
        1. WHAT IS TRANSLATION EXPOSURE?
        2. SHOULD TRANSLATION EXPOSURE BE HEDGED?
        3. ALTERNATIVE TRANSLATION METHODS
        4. THE MECHANICS OF CONTRACTUAL HEDGING
        5. THE MECHANICS OF FINANCIAL HEDGING
        6. SUMMARY
        7. APPENDIX 17A: ACCOUNTING VALUATION AND THE CONCEPT OF TRANSLATION EXPOSURE
        8. QUESTIONS FOR DISCUSSION
        9. PROBLEMS
        10. REFEREHCES
      5. CHAPTER 18: Managing Economic Exposure
        1. A TAXONOMY OF ECONOMIC EXPOSURES
        2. TOWARD AN OPERATIONAL MEASURE OF ECONOMIC EXPOSURE
        3. MANAGING OPERATING EXPOSURE
        4. SUMMARY
        5. QUESTIONS FOR DISCUSSION
        6. PROBLEMS
        7. REFERENCES
    14. PART Five: Cross-Border Valuation and Foreign Investment Analysis
      1. CHAPTER 19: Foreign Market Entry Strategies and Country Risk Management
        1. CONTRACTUAL MODES OF FOREIGN MARKET ENTRY
        2. FOREIGN MARKET ENTRY THROUGH FOREIGN DIRECT INVESTMENTS
        3. COUNTRY RISK
        4. COSTS/BENEFITS OF FOREIGN DIRECT INVESTMENT TO HOST COUNTRIES
        5. SUMMARY
        6. QUESTIONS FOR DISCUSSION
        7. REFERENCES
      2. CHAPTER 20: International Capital Budgeting
        1. THE FOREIGN DIRECT INVESTMENT DECISION-MAKING PROCESS
        2. A PRIMER ON EVALUATING INVESTMENT OPPORTUNITIES
        3. WHAT IS DIFFERENT ABOUT EVALUATING FOREIGN INVESTMENT PROPOSALS?
        4. CASE STUDY: RENAULT INVESTS IN INDIA
        5. GLOBAL COST OF EQUITY CAPITAL
        6. SUMMARY
        7. APPENDIX 20A: ADJUSTED PRESENT VALUE
        8. APPENDIX 20B: REAL OPTIONS
        9. QUESTIONS FOR DISCUSSION
        10. PROBLEMS
        11. REFERENCES
      3. CHAPTER 21: Cross-Border Mergers and Acquisitions
        1. A BRIEF HISTORY OF MERGERS AND ACQUISITIONS
        2. THE INDUSTRIAL LOGIC OF MERGERS AND ACQUISITIONS
        3. ARE CROSS-BORDER ACQUISITIONS DIFFERENT?
        4. VALUATION OF FOREIGN ACQUISITIONS
        5. CIMENTS LAFARGE ENTERS VIETNAM
        6. SUMMARY
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
      4. CHAPTER 22: Project Finance
        1. WHAT IS PROJECT FINANCE?
        2. ON ALLOCATING RISKS
        3. ANATOMY OF PROJECT FINANCE: THE CASE OF THE RAS LAFFAN LIQUEFIED NATURAL GAS COMPANY
        4. VALUING PROJECT FINANCE: THE ESTY MODEL
        5. SUMMARY
        6. QUESTIONS FOR DISCUSSION
        7. REFERENCES
      5. CHAPTER 23: Global Investing
        1. THE BASICS OF INTERNATIONAL PORTFOLIO MANAGEMENT
        2. THE GAINS FROM INTERNATIONAL DIVERSIFICATION
        3. TRIALS AND TRIBULATIONS IN FOREIGN EQUITY INVESTING
        4. CURRENCY RISK IN GLOBAL INVESTING
        5. ALTERNATIVE MODES OF INVESTING IN FOREIGN EQUITY
        6. THE NEW LANDSCAPE OF GLOBAL INVESTING
        7. SUMMARY
        8. APPENDIX 23A: IN SEARCH OF ALPHA AT GLOBAL THEMATIC PARTNERS (GTP)
        9. QUESTIONS FOR DISCUSSION
        10. PROBLEMS
        11. REFERENCES
    15. PART Six: Managing the Multinational Financial System
      1. CHAPTER 24: International Control Conundrum
        1. A PRIMER ON MANAGERIAL CONTROL
        2. THE INTERNATIONAL CONTROL CONUNDRUM
        3. CURRENCY SPACE MAPPING
        4. EVA-BASED CONTINGENT BUDGETING AND PERFORMANCE ASSESSMENT
        5. SUMMARY
        6. APPENDIX 24A: APPLYING THE EVA-BASED CONTROL SYSTEM
        7. QUESTIONS FOR DISCUSSION
        8. REFERENCES
      2. CHAPTER 25: Managing the Multinational Financial System
        1. A PRIMER ON INTERNATIONAL TAXATION
        2. THE MULTINATIONAL FINANCIAL SYSTEM
        3. EXPLOITING THE SYSTEM'S POTENTIAL TO MINIMIZE GLOBAL TAX LIABILITIES
        4. DESIGNING A GLOBAL DIVIDENDS REMITTANCE STRATEGY
        5. CENTRALIZING CASH MANAGEMENT
        6. SUMMARY
        7. QUESTIONS FOR DISCUSSION
        8. PROBLEMS
        9. REFERENCES
    16. Appendix: Answers to Selected Problems
      1. CHAPTER 2
      2. CHAPTER 3
      3. CHAPTER 5
      4. CHAPTER 6
      5. CHAPTER 7
      6. CHAPTER 8
      7. CHAPTER 9
      8. CHAPTER 10
      9. CHAPTER 11
      10. CHAPTER 15
      11. CHAPTER 16
      12. CHAPTER 17
      13. CHAPTER 18
      14. CHAPTER 20
      15. CHAPTER 21
      16. CHAPTER 23
      17. CHAPTER 25
    17. About the Companion Website
      1. CASE STUDY 3.1: Will the Euro-Zone Shutter? Plant Location and Exchange Rates for Hyundai
        1. SPAIN
        2. POLAND
        3. QUESTIONS FOR DISCUSSION
      2. CASE STUDY 4.1: When One of the BRIC(K)s Falls: Trials and Tribulations of the Indian Rupee
        1. ECONOMIC GROWTH AND FISCAL DEFICITS
        2. CURRENT ACCOUNT
        3. CAPITAL ACCOUNT
        4. RESERVE BANK OF INDIA'S INTERVENTION POLICY
        5. QUESTIONS FOR DISCUSSION
      3. CASE STUDY 5.1: Banco Mercantil Internacional's Forex Losses
        1. ROGUE TRADER
        2. TRIALS AND TRIRULATIONS OF THE ARGENTINE ECONOMY AFTER A DECADE-LONG HARD PEG
        3. CURRENCY TRADING IN THE TRANQUIL DAYS OF ARGENTINA'S CURRENCY BOARD
        4. HOW BANKS KEEP A LID ON THEIR FOREIGN EXCHANGE TRADING OPERATIONS
        5. HASTY CONCLUSION
        6. QUESTIONS FOR DISCUSSION
      4. CASE STUDY 6.1: Brazil Rede Globo's Short-Term Funding
        1. QUESTIONS FOR DISCUSSION
      5. CASE STUDY 7.1: Daewoo's Unorthodox Funding Strategy
        1. WRITING DEEP-IN-THE-MONEY OPTIONS
        2. TO HEDGE OR NOT TO HEDGE?
        3. QUESTIONS FOR DISCUSSION
      6. CASE STUDY 8.1: The Demise of AIG
        1. AIG AND THE RISE OF AIG FINANCIAL PRODUCTS UNIT
        2. CREDIT DEFAULT SWAPS VERSUS DOND INSURANCE
        3. SECURITIZATION AND CREDIT DEFAULT SWAPS
        4. THE DEMISE OF AIG
        5. QUESTIONS FOR DISCUSSION
      7. CASE STUDY 9.1: Jazztel's Foreign IP0
        1. MARKET DEREGULATION AND THE NEWLY COMPETITIVE LANDSCAPE
        2. JAZZTEL'S ENTRY STRATEGY
        3. FINANCING STRATEGY
        4. INITIAL PUBLIC OFFERING
        5. QUESTIONS FOR DISCUSSION
      8. CASE STUDY 10.1: How Thai Airways FOILs Jet Fuel Price Risk
        1. AIRCRAFT FINANCING THROUGH STRUCTURED LEASES
        2. FUEL PRICE VOLATILITY AND AIRLINE PERFORMANCE
        3. QUESTIONS FOR DISCUSSION
      9. CASE STUDY 11.1: Warrick Pharmaceuticals Inc.
        1. THREE-TIERED FOREIGN EXCHANGE MARKET IN VENEZUELA
        2. THE EXPORT MANAGER DECISION CONUNDRUM
        3. QUESTIONS FOR DISCUSSION
      10. CASE STUDY 12.1: McDonald's Dim Sum Bonds: “Lovin' It”
        1. QUESTIONS FOR DISCUSSION
      11. CASE STUDY 13.1: When Emirates Airline Taps Islamic Finance
        1. ISLAMIC ENHANCED EQUIPMENT TRUST CERTIFICATE (EETC)
        2. ISLAMIC BOND (SUKUK)
        3. QUESTIONS FOR DISCUSSION
      12. CASE STUDY 14.1: Bio-Oils Energy S.L.
        1. THE PROMISE OF BIOFUELS
        2. THE PROJECT
        3. PROCURING VEGETABLE OIL
        4. THE OFFER
        5. THE HEDGING CONUNDRUM
        6. QUESTIONS FOR DISCUSSION
      13. CASE STUDY 15.1: Euclides Engineering, Ltd.
        1. QUESTIONS FOR DISCUSSION
      14. CASE STUDY 16.1: Hedging Currency Risk at TT Textiles
        1. TT TEXTILES
        2. CURRENCY DERIVATIVES IN INDIA
        3. TT TEXTILES' HEDGING STRATEGY
        4. UNORTHODOX HEDGING WITH A THREE-YEAR CURRENCY SWAP
        5. CURRENCY OPTIONS
        6. QUESTIONS FOR DISCUSSION
      15. CASE STUDY 17.1: Wilkinson Sword's Trials and Tribulations in Turkey
        1. WILKINSON SWORD–TURKEY
        2. THE FINANCING DECISION
        3. TURKISH HYPERINFLATION
        4. TRANSLATION EXPOSURE
        5. DECISION TIME
        6. QUESTIONS FOR DISCUSSION
      16. CASE STUDY 18.1: PSA Peugeot Citroën SA's Economic Exposure to the South Korean Won
        1. QUESTIONS FOR DISCUSSION
      17. CASE STUDY 19.1: Carrefour's Indian Entry Strategy
        1. QUESTIONS FOR DISCUSSION
      18. CASE STUDY 21.1: Etihad's Proposed Acquisition of Malaysia Airlines
        1. QUESTIONS FOR DISCUSSION
      19. CASE STUDY 22.1: Clean Infra Ltd Project Finance
        1. QUESTIONS FOR DISCUSSION
      20. Glossary
    18. Index