Multinational Financial Management

Alan C. Shapiro the Ivadelle and Theodore Johnson Professor of Banking and Finance Emeritus and past chairman of the Department of Finance and Business Economics at the Marshall School of Business, University of Southern California. Dr. Shapiro has served on the board of directors of numerous corporations such as the Pacific Corporate Group, Remington Oil and Gas Corporation, OKC Corporation, and was a government-appointed director for the Lincoln Federal Savings Bank. He has published scholarly articles in the Journal of Finance, Review of Financial Studies, Harvard Business Review, and Management Science. He has won several teaching awards and has held visiting positions at Yale University, UCLA, the US Naval Academy, the Stockholm School of Economics, and the University of British Columbia. Dr. Shapiro has been a pioneer in the field of international finance where his textbooks have helped define the field. His dedication in educating several generations of corporate executives was recognized by BusinessWeek which ranked him as one of the top ten business school professors in the U.S. Paul Hanouna is an Associate Professor of Finance at Villanova University. He has held visiting positions at Santa Clara University, the Indian School of Business in Hyderabad, Copenhagen Business School, and HEC Paris. He has been a resident fellow at the Federal Deposit Insurance Corporation, a financial economist at the Securities and Exchange Commission, and a consultant for the International Monetary Fund. Dr. Hanouna specializes in corporate and international finance and his research has been published in journals such as the Journal of Banking and Finance, Journal of Corporate Finance, Journal of Economic Dynamics and Control, and Journal of Financial Intermediation, and presented at leading international conferences. Atulya Sarin is a Professor of Finance at the Leavey School of Business at Santa Clara University. He has taught numerous graduate and undergraduate courses, including International Finance, and has won numerous academic honors and awards, including the Dean's Award for Research and Extraordinary Performance. Dr. Sarin has published over 25 articles in leading finance, economics, and management journals such as the Journal of Finance, Journal of Financial Economics, Journal of Applied Corporate Finance, Academy of Management Journal, and Journal of Financial and Quantitative Analysis. Dr. Sarin specializes in economic analyses of global transfer pricing issues and has served as an expert witness and consulted for firms ranging in size from small, closely held companies to international conglomerates, and representing many different industries, as well for government agencies and departments.

Preface xxi

About the Authors xxvii

List of Figures xxix

List of Tables xxxiii

World Currencies and Symbols xxxvii

Acronyms and Symbols xliii

PART I The International Financial Management Environment

1 Introduction: Multinational Corporations and Financial Management 3

2 The Determination of Exchange Rates 40

3 The International Monetary System 67

4 Parity Conditions in International Finance and Currency Forecasting 107

5 The Balance of Payments and International Economic Linkages 145

PART II The Foreign Exchange and Derivative Markets

6 The Foreign Exchange Market 175

7 Currency Futures and Options Markets 201

8 Currency, Interest rate, and Credit Derivatives and Swaps 228

PART III Foreign Exchange Risk Management

9 Measuring and Managing Translation and Transaction Exposure 261

10 Measuring and Managing Economic Exposure 305

PART IV The International Capital Markets and Portfolio Management

11 International Financing and National Capital Markets 345

12 The Euromarkets 371

13 International Portfolio Management 392

PART V International Capital Budgeting

14 Country Risk Analysis 419

15 The Cost of Capital for Foreign Investments 452

16 Corporate Strategy and Foreign Direct Investment 484

17 Capital Budgeting for the Multinational Corporation 503

18 Managing the Internal Capital Markets of Multinational Corporations 539

Glossary G-1

Index I-1