Introductory chapter from the first edition:The whys and wherefores of international finance 1
The international in our lives 1
Organization of the international economic and financial system 3
Advantages of international trade and finance 4
Current trends in international trade and finance 10
ContentsList of exhibits,figures and tables 11
Preface 14
Ⅰ The Economics of International Transactions 15
1 Balance of payments 17
International transactions:The balance of payments 17
Acknowledgements 20
Interpreting the balance of payments 28
Summary 33
Questions 34
2 The exchange rate and economic adjustment 37
Exchange rate depreciation 38
The balance of payments,exchange rate and money supply 54
The monetary approach to the balance of payments 58
Summary 61
Questions 61
Appendix 2.1:A mathematical model of the monetary approach to the balance of payments 62
Purchasing power parity 65
3 International parity relations 65
Interest rate parity 72
The international Fisher relation 76
Forward rate parity 80
Forecasting exchange rates 82
Summary 88
Questions 88
Appendix 3.1:A mathematical model of the portfolio balance approach to the balance of Payments 89
Ⅱ Organization of the International Financial System 91
4 The international monetary system 93
Alternative exchange rate systems 93
Historical overview of the international financial system 99
The current international financial system 104
Summary 110
Questions 110
5 International banking and the Eurocurrency market 113
The Eurocurrency market 113
International funds transfer and credit expansion through the Eurocurrency system 118
The Eurocurrency market and balance of payments disequilibrium 122
International banking:Structure and instruments 125
Summary 128
Questions 129
Organization of the foreign exchange spot market 131
6 The foreign exchange market 131
The forward foreign exchange market 138
The foreign exchange and Eurocurrency markets 143
Summary 148
Questions 150
Ⅲ Derivative Markets,Instruments and Techniques 151
7 Futures markets and instruments 153
Organization of the futures exchanges 157
Basis and effective hedging 163
Hedging with futures 172
Summary 178
8 Option markets and instruments 181
Option features and markets 181
Valuing options 185
Binomial approach to option pricing 189
Continuous time options pricing formulas 198
Using the continuous time model 201
Option management tools 203
Summary 207
Appendix 8.1:The binomial option pricing model with known,proportional payouts 209
Appendix 8.2:Derivation of the Black-Scholes pricing model 210
Appendix 8.3:Derivation of the expected expiration value of the call option 212
Forward rate agreements 217
9 Exotic options and other over-the-counter instruments 217
Swaps 218
Hybrid or package options 233
Exotic options 238
Summary 250
Ⅳ International Risk Assessment 253
10 Country and political risk analysis 255
Definitions and methods in cross-border risk assessment 256
Political risk 263
Political risk analysis 269
Applications 280
Summary 287
Questions 289
11 The benefits and risks of international portfolio investment 291
The nature of risk 291
International diversification 293
International capital asset pricing 304
Other costs and risks in international investment 310
Summary 316
Questions 317
12 Advanced techniques for country and political risk assessment 319
New analytical framework 320
Assessing country creditworthiness:Advanced techniques 332
Using options pricing theory in country-specific financial risk assessment:The case of Brazil 338
Estimating systematic country risk 347
Summary 351
Appendix 12.1:Derivation of an economy's net export value (macroeconomic market value)in foreign currency 351
Appendix 12.2:The performance of the options pricing approach:Results of a 60-country study 352
Ⅴ Foreign Exchange Risk Management 355
13 Current operations and foreign exchange exposure 357
Payment terms in international trade 357
International cash management 363
Summary 371
Questions 372
14 Managing foreign exchange risk 373
Hedging with forward contracts 373
Hedging with futures contracts on organized markets 381
Other hedging instruments 383
Summary 386
Questions 386
Appendix 14.1:Hedging long-term foreign exchange risk with non-zero coupon loans 387
15 Economic and financial analysis of currency option uses 389
Speculative uses 389
Hedging with options 396
An example of arbitrage:Put-call parity 406
Summary 408
Questions 409
Combinations of simple options 413
16 Sophisticated hedging techniques 413
Exoticoptions 430
Summary 436
Questions 436
Ⅵ Borrowing and Lending Internationally 439
17 The international debt markets 441
The major domestic bond markets 441
The US bond market 442
The Japanese bond market 448
The UK bond market 451
The international bond market 452
Syndicated Eurocredits 462
Summary 472
Questions 474
18 Managing interest rate risk 475
Bond prices and yields:A review of concepts and techniques 475
Bond management:Tools and techniques 479
Long-term interest rate futures 489
Short-term interest rate futures 497
Over-the-counter hedging instruments 500
Summary 505
Questions 506
Appendix 18.1:The Matif long-term interest rate futures contract 508
Appendix 18.2:The Liffe long-term interest rate futures contract 510
Ⅶ Other International Markets 511
19 International commodity markets:Inventory and supply management 513
Intemational spot and derivative commodity markets:An overview 514
International commodity trading 519
Physical commodity contracts 521
Principles of inventory management 525
Inventory management and the principles of hedging with commodities futures 528
Summary 532
Valuing equities 535
20 World equity markets 535
Different market structures 539
International equities 541
The three major equity markets 544
Emerging markets 551
Summary 552
Questions 553
Ⅷ Capital Budgeting and Foreign Direct Investment 555
21 Foreign direct investment:Capital budgeting and political,economic and financial risk management 557
Reasons for cross-border investing 557
The orthodox theory of investment 559
Techniques for project evaluation 561
Foreign exchange exposure from direct investments 568
The option approach to investment under uncertainty 577
Beyond mean-variance 584
Summary 588
Questions 589
Appendix 21.1:Investment choice with dependent political risk 590
22 Foreign direct investment:Measuring and managing risk 593
Estimating the risk 593
Managing exposure of foreign direct investment to political risk 601
Summary 605
Questions 606
Appendix 22.1:The relation between the CAPM and the Black-Scholes option pricing formula 607
Advantages and disadvantages of M A as an investment strategy 609
23 International mergers and acquisitions 609
Mechanics of international M A 614
Financial techniques in M A 619
Summary 624
Questions 625
Appendix 23.1:M A regulations in some major countries 625
Selected web sites 628
Glossary 630
References 641
Name index 652
Subject index 655