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Multinational Financial Management, 9th Edition

March 2009, ©2010
Multinational Financial Management, 9th Edition (EHEP000295) cover image
As more businesses in today’s economy are moving towards a global reach, it is essential for finance students to understand how the fundamentals of corporate finance relate to multinational firms.  Shapiro’s Multinational Financial Management 9th Edition provides that conceptual framework within which key financial decisions of a multinational firm can be analyzed. The author’s comprehensive approach is to treat international financial management as a natural extension of the principles learned in the first course in financial management. The book builds its coverage of international finance on the framework of valuation established by domestic corporate finance. It can be used in courses in International Financial Management and International Finance at the upper-level undergraduate or MBA level.
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Part I: Environment of International Financial Management.

CHAPTER 1: INTRODUCTION: MULTINATIONAL ENTERPRISE AND MULTINATIONAL FINANCIAL MANAGEMENT.

1.1 The Rise of the Multinational Corporation.

1.2 The Internationalization of Business and Finance.

1.3 Multinational Financial Management: Theory and Practice.

1.4 Outline of the Book.

APPENDIX 1A: THE ORIGINS AND CONSEQUENCES OF INTERNATIONAL TRADE.

CHAPTER 2: THE DETERMINATION OF EXCHANGE RATES.

2.1 Setting the Equilibrium Spot Exchange Rate.

2.2 Expectations and the Asset Market Model of Exchange Rates.

2.3 The Fundamentals of Central Bank Intervention.

2.4 The Equilibrium Approach to Exchange Rates.

2.5 Summary and Conclusions.

CHAPTER 3: THE INTERNATIONAL MONETARY SYSTEM.

3.1 Alternative Exchange Rate Systems.

3.2 A Brief History of the International Monetary System.

3.3 The European Monetary System and Monetary Union.

3.4 Emerging Market Currency Crises.

3.5 Summary and Conclusions.

CHAPTER 4: PARITY CONDITIONS IN INTERNATIONAL FINANCE AND CURRENCY FORECASTING.

4.1 Arbitrage and the Law of One Price.

4.2 Purchasing Power Parity.

4.3 The Fisher Effect.

4.4 The International Fisher Effect.

Empirical Evidence.

4.5 Interest Rate Parity Theory.

4.6 The Relationship Between the Forward Rate and the Future Spot Rate.

4.7 Currency Forecasting.                           

4.8 Summary and Conclusions.

CHAPTER 5: THE BALANCE OF PAYMENTS AND INTERNATIONAL ECONOMIC LINKAGES.

5.1 Balance-of-Payments Categories.

5.2 The International Flow of Goods, Services, and Capital.

5.3 Coping with the Current-Account Deficit.

5.4 Summary and Conclusions.

CHAPTER 6: COUNTRY RISK ANALYSIS.

6.1 Measuring Political Risk.

6.2 Economic and Political Factors Underlying Country Risk.

6.3 Country Risk Analysis in International Banking.

6.4 Summary and Conclusions.

Part II: Foreign Exchange and Derivatives Markets.

CHAPTER 7:  THE FOREIGN EXCHANGE MARKET.

7.1 Organization of the Foreign Exchange Market.

7.2 The Spot Market.

7.3 The Forward Market.

7.4 Summary and Conclusions.

CHAPTER 8: CURRENCY FUTURES AND OPTIONS MARKETS.

8.1 Futures Contracts.

8.2 Currency Options.

8.3 Reading Currency Futures and Options Prices.

8.4 Summary and Conclusions.

APPENDIX 8A: Option Pricing Using Black-Scholes.

APPENDIX 8B: Put-Call Option Interest Rate Parity.

CHAPTER 9: SWAPS AND INTEREST RATE DERIVATIVES.

9.1 Interest Rate and Currency Swaps.

9.2 Interest Rate Forwards and Futures.

9.3 Structured Notes.

9.4 Summary and Conclusions.

Part III: Foreign Exchange Risk Management.

CHAPTER 10: MEASURING AND MANAGING TRANSLATION AND TRANSACTION EXPOSURE.

10.1 Alternative Measures of Foreign Exchange Exposure.

10.2 Alternative Currency Translation Methods.

10.3 Transaction Exposure.

10.4 Designing a Hedging Strategy.

10.5 Managing Translation Exposure.

10.6 Managing Transaction Exposure.

10.7 Summary and Conclusions.

CHAPTER 11: MEASURING AND MANAGING ECONOMIC EXPOSURE.

11.1 Foreign Exchange Risk and Economic Exposure.

11.2 The Economic Consequences of Exchange Rate Changes.

11.3 Identifying Economic Exposure.

11.4 Calculating Economic Exposure.

11.5 An Operational Measure of Exchange Risk.

11.6 Managing Operating Exposure.

11.7 Summary and Conclusions.

Part IV: Financing the Multinational Corporation.

CHAPTER 12: INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS.

12.1 Corporate Sources and Uses of Funds.

12.2 National Capital Markets as International Financial Centers.

12.3 Development Banks.

12.4 Project Finance.

12.5 Summary and Conclusions.

CHAPTER 13: THE EUROMARKETS.

13.1 The Eurocurrency Market.

13.2 Eurobonds.

13.3 Note Issuance Facilities and Euronotes.

13.4 Euro-Commercial Paper.

13.5 The Asiacurrency Market.

13.6 Summary and Conclusions.

CHAPTER 14: THE COST OF CAPITAL FOR FOREIGN INVESTMENTS.

14.1 The Cost of Equity Capital.

14.2 The Weighted Average Cost of Capital for Foreign Projects.

14.3 Discount Rates for Foreign Investments.

14.4 The Cost of Debt Capital.

14.5 Establishing a Worldwide Capital Structure.

14.6 Valuing Low-Cost Financing Opportunities.

14.7 Summary and Conclusions.

Part V: Foreign Investment Analysis.

CHAPTER 15: INTERNATIONAL PORTFOLIO INVESTMENT.

15.1 The Risks and Benefits of International Equity Investing.

15.2 International Bond Investing.

15.3 Optimal International Asset Allocation.

15.4 Measuring the Total Return from Foreign Portfolio Investing.

15.5 Measuring Exchange Risk on Foreign Securities.

15.6 Summary and Conclusions.

CHAPTER 16: CORPORATE STRATEGY AND FOREIGN DIRECT INVESTMENT.

16.1 Theory of the Multinational Corporation.

16.2 The Strategy of Multinational Enterprise.

16.3 Designing a Global Expansion Strategy.

16.4 Summary and Conclusions.

CHAPTER 17: CAPITAL BUDGETING FOR THE MULTINATIONAL CORPORATION.

17.1 Basics of Capital Budgeting.

17.2 Issues in Foreign Investment Analysis.

17.3 Foreign Project Appraisal: The Case of International Diesel Corporation.

17.4 Political Risk Analysis.

17.5 Growth Options and Project Evaluation.

17.6 Summary and Conclusions.

APPENDIX 17A: MANAGING POLITICAL RISK.

Part VI: Multinational Working Capital Management.

CHAPTER 18: FINANCING FOREIGN TRADE.

18.1 Payment Terms in International Trade.

18.2 Documents in International Trade.

18.3 Financing Techniques in International Trade.

18.4 Government Sources of Export Financing and Credit Insurance.

18.5 Countertrade.

18.6 Summary and Conclusions.

CHAPTER 19: CURRENT ASSET MANAGEMENT AND SHORT-TERM FINANCING.

19.1 International Cash Management.

19.2 Accounts Receivable Management.

19.3 Inventory Management.

19.4 Short-Term Financing.

19.5 Summary and Conclusions.

CHAPTER 20: MANAGING THE MULTINATIONAL FINANCIAL SYSTEM.

20.1 The Value of the Multinational Financial System.

20.2 Intercompany Fund-Flow Mechanisms: Costs and Benefits.

20.3 Designing a Global Remittance Policy.

20.4 Summary and Conclusions.

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Dr. Alan C. Shapiro is the Ivadelle and Theodore Johnson Professor of Banking and Finance. Prior to joining USC in 1978, he was an Assistant Professor at the Wharton School of the University of Pennsylvania (1971-1978). He has also been a Visiting Professor at Yale University, UCLA, the Stockholm School of Economics, University of British Columbia, and the U.S. Naval Academy. His specialties are corporate and international financial management.
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  • NEW updates throughout, including new illustrations, questions, and problems.
  • Enhanced discussion of current topics, such as: the nature and benefits of globalization and Euro currency and Eurobond markets.
  • NEW Mini-cases added throughout the chapters that feature a short case with a series of questions for students to answer.
  • New discussion of the debate over outsourcing, the deindustrialization of America, and the political economy of trade policy.
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∙ Discussion of the nature and benefits of globalization as well as the motivations for foreign direct investment and the evolution of the multinational corporation (Ch. 1)
∙ Discussion of outsourcing, the deindustrialization of America, and the political economy of trade policy (Ch.1)
∙ Extensive discussion of the basic concepts of absolute and comparative advantage as well as some insight into the gains and income redistributions associated with free trade and the consequences of barriers to trade (Appendix 1A)
∙ Role of expectations in determining exchange rates (Ch.2)
∙ Extensive discussion of the Mexican currency crisis in 1994-1995 (Ch.2)
∙ Discussion of currency boards and the role of central bank credibility in the context of the dramatic changes made recently in Argentina and New Zealand (Ch. 2)
∙ Analysis of the September 1992 and August 1993 European currency crises (Ch. 3)
∙ Discussion of monetary union, optimum currency areas, and the causes and consequences of the introduction of the euro (Ch. 3)
∙ Discussion of the causes and consequences of recent competitive devaluations (Ch. 3)
∙ Analysis of how and why the French and Dutch rejections of the European constitution in May and June 2005 affected the value of the euro (Ch. 3)
∙ Extensive discussion of the causes and consequences of the Asian and other emerging market currency crises in 1997-1998 (Ch. 1, 2, and 3)
∙ Extended discussion of China, its new role in the world economy and its various economic policies, such as its weak yuan exchange rate policy and banking problems (Ch. 1, 2, 3, and 6)
∙ Integrated discussion of the five key parity relationships in international finance and how they can be used to forecast exchange rates (Ch. 4)
∙ Purchasing power parity and the Big Mac standard (Ch.4)
∙ Discussion of recent research on biases in the forward exchange rate and possible causes, including the peso problem (Ch.4)
- Discussion on linking currency forecasts to specific decision rules (Ch.4)
∙ Use of the balance-of-payments framework to assess the economic links among nations (Ch. 5)
∙ Discussion of the global savings glut and the effect it has had on the U.S. current-account deficit (Ch. 5)
∙ Examination of some policy changes to deal with the U.S. current-account deficit (Ch. 5)
∙ Demonstration of double-entry bookkeeping in balance-of-payments accounting (Ch. 5)
∙ Discussion of country risk analysis for both companies and banks, along with an analysis of the dramatic changes taking place throughout Latin America, Eastern Europe, and China and their implications for economic growth (Ch. 6)
∙ Comprehensive discussion of the foreign exchange market and its institutions and mechanisms, including electronic trading (Ch. 7)
∙ Understanding of currency futures and options contracts (Ch. 8), and their use in exchange risk management (Ch.10)
∙ Presentation on how to compute gains, losses, and maintenance margins on a futures contract (Ch.8)
∙ Discussion of currency spreads and knockout (or barrier) options (Ch.8)
∙ Introduction of a modified Black-Scholes option pricing model to the pricing of currency options and discussion of its shortcomings (Ch. 8)
∙ Use of interest rate and currency swaps to manage foreign exchange and interest rate risk (Ch. 9)
∙ Discussion of fixed-for-fixed and fixed-for-floating currency interest rate swaps (Ch. 9)
∙ Discussion of dual currency bond swaps (Ch. 9)
∙ Lengthy illustration of how to compute the net cash flows and costs and benefits of a complex currency interest rate currency swap (Ch.9)
∙ Discussion of interest-rate risk management techniques, including forward rate agreements, forward forwards, and Eurodollar futures (Ch. 9)
∙ Discussion of structured notes, such as inverse floaters and step-up and step-down notes, their pricing, and their use in interest rate risk management (Ch. 9)
∙ Discussion and comparison of the three basic types of exposure–accounting exposure, transaction exposure, and operating exposure (Ch. 10)
∙ Extended discussion on the design of a hedging strategy (Ch.10)
∙ Discussion of managing the risk management function, including lessons learned from some highly publicized cases of derivatives-related losses (Ch.10)
∙ Use of currency risk sharing in international contracts (Ch.10)
∙ Comparison of hedging alternatives when there are transaction costs (Ch.10)
∙ Discussion of cross-hedging using a simple regression analysis (Ch.10)
∙ Discussion of how to structure and use currency collars (or range forwards) and currency cylinders to hedge exchange risk (Ch. 10)
∙ Discussion of hedge accounting and FASB 133 (Ch.10)
∙ Identification of the economic, as opposed to accounting, aspects of foreign exchange risk (Ch. 11)
∙ Development of marketing and production strategies to cope with exchange risk (Ch. 11)
∙ Analysis of how Japanese firms have coped with the appreciation of the yen (Ch.11)
∙ Discussion of how European manufacturers are coping with euro appreciation and how U.S. firms dealt with a soaring dollar (Ch. 11)
∙ Discussion of the functions, consequences, and globalization of financial markets and the links between national and international capital markets (Ch. 12)
∙ Discussion of the external medium- and long-term financing options available to the  multinational corporation (Ch. 12)
∙ Discussion of how Japanese and Chinese banks wound up with huge losses and what they are doing to deal with their losses (Ch. 12)
∙ Discussion of international differences in corporate governance and the economic consequences of those differences (Ch. 12)
∙ Discussion of project financing (Ch. 12)
∙ Discussion of the Eurocurrency and Eurobond markets (Ch. 13)
∙ Discussion of how to calculate the effective costs of Eurocurrency loans and Eurocommercial paper and all-in costs of Eurobonds (Ch.13)
∙ Evaluation of foreign currency-denominated debt (Ch. 14)
∙ Extended discussion of calculating the cost of capital for multinational companies (Ch. 14)
∙ Analysis of how globalization has affected the cost of capital (Ch. 14)
∙ Design of a global financing strategy (Ch. 14)
∙ Discussion of alternative approaches to estimating the cost of capital for foreign operations (Ch.14)
∙ Analysis of how to compute market risk premiums that differ across markets (Ch. 14)
∙ Understanding of the nature and consequences of international portfolio investment (Ch. 15)
∙ Discussion of the home bias in international portfolio investing and the effects of hedging on the efficient frontier for internationally diversified portfolios (Ch.15)
∙ Analysis of exchange risk associated with foreign portfolio investments (Ch. 15)
∙ Development of global strategies of MNCs (Ch. 16)
∙ Assessment of the true profitability of a foreign operation (Ch. 17)
∙ Valuation of the growth options often associated with foreign investments (Ch.17)
∙ Role of countertrade in financing international trade (Ch.18)
∙ Calculation of the cost of acceptance financing and factoring (Ch. 18)
∙ Discussion of online alternatives to a letter of credit (Ch. 18)
∙ Costs and benefits of managing interaffiliate fund flows on a global basis (Ch.20)
∙ Discussion of new transfer pricing issues and "earnings-stripping" charges involving foreign company operations in the United States (Ch.20)
∙ Integration of tax management with financial management based on recent tax law changes (Ch. 20)
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Test Bank
The test bank contains over 160 additional questions and problems suitable for us in multiple choice exams.
Instructor's Manual with Solutions
Instructor's Manual with Solutions contains detailed solutions to the end-of-chapter questions and problems, and tips for teaching each chapter
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Wiley E-Text   
Multinational Financial Management, 9th Edition
ISBN : 978-0-470-47757-1
November 2008, ©2009
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Multinational Financial Management, 9th Edition
ISBN : 978-0-470-41501-6
784 pages
March 2009, ©2010
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