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Multinational Financial Management, 11th Edition

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Multinational Financial Management, 11th Edition

Alan C. Shapiro

ISBN: 978-1-119-55990-0 December 2019 666 Pages

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The eleventh edition of Multinational Financial Management is a comprehensive survey of the essential areas of the international financial market environment, including foreign exchange and derivative markets, risk management, and international capital markets and portfolio investment. Designed for upper-level undergraduate and masters-level courses in international finance and management, this textbook offers readers a conceptual framework for analyzing key financial decisions of multinational firms. The authors both explain and simplify multinational financial management by illustrating how its basic principles share the same foundation as domestic corporate finance.

Assuming no prior knowledge of international economics or finance, this substantially revised new edition builds upon the fundamental principles of domestic financial management to examine the unique dimensions of international finance. Readers are presented with a solid theoretical knowledgebase for examining decision problems, as well as practical analytical techniques that clarify the often-ambiguous guidelines used by international financial executives. All the traditional areas of corporate finance are explored from the perspective of a multinational corporation, focusing on elements rarely encountered in domestic finance such as multiple currencies, segmented capital markets, and political risks of nationalization or expropriation.

PART I THE INTERNATIONAL FINANCIAL MANAGEMENT ENVIRONMENT

1             Introduction: Multinational Corporations and 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: The Origins and Consequences of International Trade

 

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         DISEQUILIBRIUM THEORY AND EXCHANGE RATE OVERSHOOTING

2.6         CONCLUSIONS  

 

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 

 

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

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 

 

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 

 

PART II THE FOREIGN EXCHANGE AND DERIVATIVE MARKETS

6             The Foreign Exchange Market   

6.1         ORGANIZATION OF THE FOREIGN EXCHANGE MARKET    

6.2         THE SPOT MARKET         

6.3         THE FORWARD MARKET

6.4         SUMMARY AND CONCLUSIONS 

 

7             Currency Futures and Options Market   

7.1         FUTURES CONTRACTS    

7.2         CURRENCY OPTIONS      

7.3         READING CURRENCY FUTURES AND OPTIONS PRICES      

7.4         SUMMARY AND CONCLUSIONS 

Appendix: Option Pricing Using Black-Scholes     

 

8             Currency, Interest Rate, and Credit Derivatives and Swaps         

8.1         INTEREST RATE AND CURRENCY SWAPS 

8.2         INTEREST RATE FORWARDS AND FUTURES           

8.3         STRUCTURED NOTES      

8.4         CREDIT DEFAULT SWAPS              

8.5         SUMMARY AND CONCLUSIONS 

 

PART III FOREIGN EXCHANGE RISK MANAGEMENT

9             Measuring and Managing Translation and Transaction Exposure             

9.1         ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSURE      

9.2         ALTERNATIVE CURRENCY TRANSLATION METHODS          

9.3         TRANSACTION EXPOSURE            

9.4         DESIGNING A HEDGING STRATEGY           

9.5         MANAGING TRANSLATION EXPOSURE    

9.6         MANAGING TRANSACTION EXPOSURE    

9.7         SUMMARY AND CONCLUSIONS 

Appendix: Statement of Financial Accounting Standards No. 52  

 

10           Measuring and Managing Economic Exposure   

10.1       FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE    

10.2       THE ECONOMIC CONSEQUENCES OF EXCHANGE RATE CHANGES

10.3       IDENTIFYING ECONOMIC EXPOSURE       

10.4       CALCULATING ECONOMIC EXPOSURE     

10.5       AN OPERATIONAL MEASURE OF EXCHANGE RISK

10.6       MANAGING OPERATING EXPOSURE        

10.7       SUMMARY AND CONCLUSIONS 

 

PART IV THE INTERNATIONAL CAPITAL MARKETS AND PORTFOLIO MANAGEMENT

11           International Financing and National Capital Markets    

11.1       CORPORATE SOURCES AND USES OF FUNDS        

11.2       NATIONAL CAPITAL MARKETS AS INTERNATIONAL FINANCIAL CENTERS   

11.3       DEVELOPMENT BANKS  

11.4       PROJECT FINANCE          

11.5       SUMMARY AND CONCLUSIONS 

 

12           The Euromarkets            

12.1       THE EUROCURRENCY MARKET   

12.2       EUROBONDS     

12.3       NOTE ISSUANCE FACILITIES AND EURONOTES     

12.4       EURO-COMMERCIAL PAPER        

12.5       THE ASIACURRENCY MARKET     

12.6       SUMMARY AND CONCLUSIONS 

 

13           International Portfolio Management     

13.1       THE RISKS AND BENEFITS OF INTERNATIONAL EQUITY INVESTING              

13.2       INTERNATIONAL BOND INVESTING          

13.3       OPTIMAL INTERNATIONAL ASSET ALLOCATION   

13.4       MEASURING THE TOTAL RETURN FROM FOREIGN PORTFOLIO INVESTING              

13.5       MEASURING EXCHANGE RISK ON FOREIGN SECURITIES   

13.6       SUMMARY AND CONCLUSIONS 

 

PART V INTERNATIONAL CAPITAL BUDGETING

14           Country Risk Analysis    

14.1       LEARNING OBJECTIVES  

14.2       MEASURING POLITICAL RISK       

14.3       ECONOMIC AND POLITICAL FACTORS UNDERLYING COUNTRY RISK           

14.4       COUNTRY RISK ANALYSIS IN INTERNATIONAL LENDING   

14.5       SUMMARY AND CONCLUSIONS 

 

15           The Cost of Capital for Foreign Investments       

15.1       THE COST OF EQUITY CAPITAL    

15.2       THE WEIGHTED AVERAGE COST OF CAPITAL FOR FOREIGN PROJECTS       

15.3       DISCOUNT RATES FOR FOREIGN INVESTMENTS   

15.4       THE COST OF DEBT CAPITAL        

15.5       ESTABLISHING A WORLDWIDE CAPITAL STRUCTURE        

15.6       VALUING LOW-COST FINANCING OPPORTUNITIES            

15.7       SUMMARY AND CONCLUSIONS 

16           Corporate Strategy and Foreign Direct Investment         

16.1       THEORY OF THE MULTINATIONAL CORPORATION             

16.2       DESIGNING A GLOBAL EXPANSION STRATEGY      

16.3       SUMMARY AND CONCLUSIONS 

 

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 

 

18           Managing the Internal Capital Markets of Multinational Corporations

18.1       THE VALUE OF THE MULTINATIONAL FINANCIAL SYSTEM

18.2       INTERCOMPANY FUND-FLOW MECHANISMS: COSTS AND BENEFITS          

18.3       DESIGNING A GLOBAL REMITTANCE POLICY        

18.4       SUMMARY AND CONCLUSIONS 

 

  • Expanded coverage of international portfolio management
  • New material on Exchanged-Traded Funds (ETFs) and investing in emerging markets
  • New Chapter 21 on International Corporate Governance
  • New section in Chapter 1 discussing the changing corporate landscape (i.e. Global Fortune 500 corporations)
  • New basic economic geography in Chapter 1 to illustrate the dramatic increase in wealth that has been happening outside the traditional industrialized countries.
  • Numerous currency updates to include topics such as Brexit, Crypto, Trade and Tariffs, and recent new U.S. tax laws enacted and its effect on MNCs
  • Updated coverage of cryptocurrency, Brexit, US tax laws, and trade and tariffs
  • Provides numerous real-world examples of applications of financial concepts and theories
  • Focuses on corporate practice and the issues, tools, and techniques used in day-to-day financial decision making
  • Features action-oriented learning objectives, mini-cases, key term definitions, end-of-chapter questions and problems related to actual companies and situations, and links to online resources that address chapter content
  • Includes extensive teaching materials including an instructor’s manual, additional case studies, PowerPoint presentations, a test bank, and a companion website