Preface
Acknowledgments
To the Student
Why Study International Finance?
Finance and the Multinational Firm
The Actors
Plan of Attack
SECTION 1: The International Monetary Environment
Chapter 1. The Foreign Exchange Market
Foreign Exchange Trading Volume
Geographic Foreign Exchange Rate Activity
Spot Exchange Rates
Currency Arbitrage
Short-term Foreign Exchange Rate Movements
Long-term Foreign Exchange Movements
Summary
Exercises
Further Reading
Appendix 1A Trade-weighted Exchange Rate Indexes
Appendix 1B The Top Foreign Exchange Dealers
Chapter 2. International Monetary Arrangements
The Gold Standard: 1880 to 1914
The Interwar Period: 1918 to 1939
The Bretton Woods Agreement: 1944 to 1973
Central Bank Intervention during Bretton Woods
The Breakdown of the Bretton Woods
The Transition Years: 1971 to 1973
International Reserve Currencies
Floating Exchange Rates: 1973 to the Present
Currency Boards and “Dollarization”
The Choice of an Exchange Rate System
Optimum Currency Areas
The European Monetary System and the Euro
Summary
Exercises
Further Reading
Appendix 2A Current Exchange Practices of Specific Countries
Chapter 3. The Balance of Payments
Current Account
Financing the Current Account
Additional Summary Measures
Transactions Classifications
Balance of Payments Equilibrium and Adjustment
The U.S. Foreign Debt
How Bad is the U.S. Foreign Debt?
Summary
Exercises
Further Reading
SECTION 2: International Parity Conditions
Chapter 4. Forward-looking Market Instruments
Forward Rates
Swaps
Futures
Options
Recent Practices
Summary
Exercises
Further Reading
Chapter 5. The Eurocurrency Market
Reasons for Offshore Banking
Libor
Interest Rate Spreads and Risk
International Banking Facilities
Offshore Banking Practices
Summary
Exercises
Further Reading
Chapter 6. Exchange Rates, Interest Rates, and Interest Parity
Interest Parity
Interest Rates and Inflation
Exchange Rates, Interest Rates, and Inflation
Expected Exchange Rates and the Term Structure of Interest Rates
Summary
Exercises
Further Reading
Appendix 6A What Are Logarithms, and Why Are They Used in Financial Research?
Chapter 7. Prices and Exchange Rates: Purchasing Power Parity
Absolute Purchasing Power Parity
The Big Mac Index
Relative Purchasing Power Parity
Time, Inflation, and PPP
Deviations from PPP
Overvalued and Undervalued Currencies
Real Exchange Rates
Summary
Exercises
Further Reading
Appendix 7.A The Effect on PPP by Relative Price Changes
SECTION 3: Risk and International Capital Flows
Chapter 8. Foreign Exchange Risk and Forecasting
Types of Foreign Exchange Risk
Foreign Exchange Risk Premium
Market Efficiency
Foreign Exchange Forecasting
Summary
Exercises
Further Reading
Chapter 9. Financial Management of the Multinational Firm
Financial Control
Cash Management
Letters of Credit
An Example of Trade Financing
Intrafirm Transfers
Capital Budgeting
Summary
Exercises
Further Reading
Appendix 9A Present Value
Chapter 10. International Portfolio Investment
Portfolio Diversification
Reasons for Incomplete Portfolio Diversification
International Investment Opportunities
The Globalization of Equity Markets
Summary
Exercises
Further Reading
Chapter 11. Direct Foreign Investment and International Lending
Direct Foreign Investment
Capital Flight
Capital Inflow Issues
International Lending and Crisis
International Lending and the Great Recession
IMF Conditionality
The Role of Corruption
Country Risk Analysis
Summary
Exercises
Further Reading
SECTION 4: Modeling the Exchange Rate and Balance of Payments
Chapter 12. Determinants of the Balance of Trade
Elasticities Approach to the Balance of Trade
Elasticities and the J-Curve
Currency Contract Period
Pass-Through Analysis
The Marshall-Lerner Condition
The Evidence from Devaluations
Absorption Approach to the Balance of Trade
Summary
Exercises
Further Reading
Chapter 13. The IS-LM-BP Approach
Internal and External Macroeconomic Equilibrium
The IS Curve
The LM Curve
The BP Curve
Equilibrium
Shifting the BP Curve
Monetary Policy under Fixed Exchange Rates
Fiscal Policy under Fixed Exchange Rates
Monetary Policy under Floating Exchange Rates
Fiscal Policy under Floating Exchange Rates
Using the IS-LM-BP Approach: The Asian Financial Crisis
International Policy Coordination
Summary
Exercises
Further Reading
Appendix 13A The Open-Economy Multiplier
Chapter 14. The Monetary Approach
Specie-flow Mechanism
The Monetary Approach
The Monetary Approach to the Balance of Payments
Monetary Approach to the Exchange Rate
Monetary Approach for a Managed Floating Exchange Rate
Sterilization
Sterilized Intervention
Summary
Exercises
Further Reading
Chapter 15. Extensions to the Monetary Approach of Exchange Rate Determination
The Role of News
The Portfolio-Balance Approach
The Trade Balance Approach
The Overshooting Approach
The Currency Substitution Approach
Recent Innovations to Open-Economy Macroeconomics
Summary
Exercises
Further Reading
Glossary
Index
