If you are a financial manager aspiring to an international career – or only if you want to understand the implications of the cross-border expansion of the companies, “Multinational Financial Management” must have a place in your book shelf. I’ve met in my life quite a few finance managers with international responsibilities – and not all of them understood exactly what were they doing. A key theme of this book is that most of the successful companies operate in an international environment and ignoring this can be at your (company’s) peril. In this complex and dynamic environment, financial management plays an essential role. The difference between one company or another lies no longer in the quality of the products or in the customer image. Strong competitive advantages come nowadays from having a differently configured supply chain (e.g. manufacturing in China) or from taking advantage of exchange rates or complex financial derivatives. There are nowadays production companies that can make more profits from exchange rate differences than from the production itself – see the case of some Swiss companies who saw a huge swing in their profits on the increase of the CHF versus other currencies.
“Multinational Financial Management” is written with a practical perspective in mind. You can find inside its covers basically all the topics related to a company’s corporate finance function – with an international twist. So don’t be surprised that most of the topics are well know from your BA in Finance – because they actually are. In here it is the practicalities that count. The focus goes to the more important topics, where the value is added for the companies – taxation differentials, appraising foreign investment projects or repatriating your profits with minimal costs. Even the presentation of the book mentions that it is a natural extension of the first course in the financial management. It is therefore too general sometimes – or maybe destined for a bachelor’s degree in finance rather than for an MBA.
As usually, a short review on a topic I liked the most – in this books’ case the parity conditions in international finance and the currency forecasting. One reason why most of the multinationals undertake hedging is that the finance managers hate the risk – and hedging is one way of avoiding it. Better than hedging is only an accurate forecasting – and reducing uncertainty in international trade also means understanding where and how much your currency exposure is going. Between interest rate parity and purchasing power parity, understanding the macroeconomics of the international trade can be essential if you want to price your goods correctly and still make a decent profit in one country.
All in all, this is a nice textbook with a solid background in corporate finance and international financial management. If you are wishing to enlarge your horizons or just consult a certain topic in more depth, then this book could help you.
Content:
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 Asian currency 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.