International financial management
Apte, Prakash G.
International financial management - Ed.4 - New Delhi Tata McGraw Hill Pub. Co. Ltd. 2007 - xiv,655p.
CONTENTS Preface to the Fourth Edition v Preface to the First Edition vii 1. Financial Management in a Global Context 1 1.1 Why Study International Finance? 1 1.2 The Finance Function6 1.3 The Emerging Challenges 8 IARecent Changes in Global Financial Markets 9 Summary 11 Appendix 112 References 19 2. Objectives of the Firm and the Impact of Risk 20 2.1 Objectives of the Firm 20 2.2Risk Management and Wealth Maximisation 22 2.3A Framework for Financial Decisions 27 Questions and Problems27 References 28 3. The Nature and Measurement of Exposure and Risk 30 3.1 The Nature of Exposure and Risk 30 3.2Exchange Rate and Interest Rate Volatility: Recent Experience 31 3.3Exposure and Risk: A Formal Approach 34 3.4Classification of Foreign Exchange Exposure and Risk 43 3.5Accounting Treatment of Transaction and Translation Exposure 50 3.6Exchange Rates, Interest Rates, Inflation Rates and Exposure 51 3.7Interest Rate Exposure and Risk 52 References 53 Appendix 3 54 Case Study 62 4. The Balance of Payments 63 4.1 What is the Balance of Payments?63 4.2 Accounting Principles in Balance of Payments64 4.3 Valuation and Timing66 4.4 Components of the Balance of Payments67 4.5 Meaning of Deficit and Surplus in the Balance of Payments70 4.6 Why are BOP Statistics Important?72 Summary72 Questions and Problems73 References73 Appendix 475 Case Study82 5. The International Monetary System 83 5.1 Introduction83 5.2 Exchange Rate Regimes84 5.3 The International Monetary Fund (IMF)90 5.4 The Problem of Adjustment96 5.5 The Economic and Monetary Union (EMU)97 Summary99 Questions and Problems99 References100 Appendix 5102 6. Global Financial Markets and Interest Rates 109 6.1 The Global Financial Market109 6.2 Domestic and Offshore Markets110 6.3 Euromarkets111 6.4 Interest Rates in the Global Money Markets 115 6.5 An Overview of Money Market Instruments120 Summary122 Questions and Problems123 References123 Appendix 6124 7. The Foreign Exchange Market 127 7.1 Introduction727 7.2 Structure of the Foreign Exchange Market725 7.3 Types of Transactions and Settlement Dates730 7.4 Exchange Rate Quotations and Arbitrage132 7.5 Forward Quotations144 7.6 Pricing of Short-Date and Broken Date Contracts149 7.7Exchange Rate Regimes and the Foreign Exchange Market in India 157 Questions and Problems 162 References164 Appendix 7166 Case Study 172 8. Forwards, Swaps and Interest Parity 174 8.1 Introduction174 8.2 Arbitrage without Transactions Costs175 8.3 Arbitrage with Transaction Costs180 8.4 Swaps and Deposit Markets187 8.5 Inter-bank Forward Dealing188 8.6 Option Forwards190 8.7 Forward-forward Swaps: Swap Positions191 8.8 Forward Spread Agreements (FSA), Exchange Rate Agreements (ERA) and Forward Exchange Agreements (FXA)194 8.9 Forward Exchange Rates in India198 Summary201 Questions and Problems202 References204 Appendix 8 205 Case Study 220 9. Currency and Interest Rate Futures 221 9.1 Introduction227 9.2 Futures Contracts, Markets and the Trading Process222 9.3 Futures Prices, Expected Spot Prices and Forward Prices227 9.4 Hedging and Speculation with Currency Futures233 9.5 Interest Rate Futures244 9.6 Hedging and Speculation with Interest Rate Futures248 Summary 254 Questions and Problems255 References25 7 Appendix 9259 Case Study264 10. Currency Options 265 10.1 Introduction265 10.2 Options on Spot, Options on Futures and Futures Style Options266 10.3 Options Terminology267 10.4 Price Quotations269 10.5 Elementary Option Strategies270 10.6 Hedging with Currency Options277- 10.7 Principles of Option Pricing280 10.8 Option Pricing Models290 10.9 Option Deltas and Related Concepts: The Greeks293 10.10 Over-the-counter (OTC) Market Practices298 10.11 Futures Options299 10.12 Innovations with Embedded Options300 10.13 Empirical Studies of Option Pricing Models305 10.14 Currency Options in India 306 Summary307 Questions and Problems 307 References310 Appendix 10 313 Case Study 328 11. Exchange Rate Determination and Forecasting 329 11.1Introduction329 11.2 Some Fundamental Equivalence Relationships330 11.3Structural Models of Exchange Rate Determination340 11.4 Exchange Rate Forecasting351 11.5 The Exchange Rate of the Rupee354 Summary357 . Questions and Problems357 References 358 Appendix 11 361 12. Corportae Exposure Management Policy y 373 12.1Introduction573 12.2 The Risk Management Process374 12.3 Objectives of Hedging Policy376 12.4 Organisational Issues377 12.5 Information System for Exposure Management 380 Summary380 Questions and Problems381 References381 13. Hedging, Speculation and Management of Transactions Exposure 383 13.1Introduction383 13.2 Using The Forward Markets for Hedging Transactions Exposure384 13.3 Hedging with the Money Market388 13.4 Hedging with Currency Options390 13.5 Hedging with Currency Futures397 13.6 Internal Hedging Strategies398 13.7 Speculation in Foreign Exchange and Money Markets 404 Summary 405 Questions and Problems405 References409 Appendix 13410 Case Study416 14. Management of Operating Exposure 418 14.1 Introduction418 14.2 Operating Exposure and Real Exchange Rate419 14.3 The Price and Quantity Effects of Exchange Rate Changes: A General Overview 423 14.4 Assesing Operating Exposure: Scenario Approach425 14.5 Operating Exposure: Regression Approach428 14.6 An Exporter Firm429 14.7 An Importer Frrm433 14.8 Currency of Invoicing, Quantity Inertia and Operating Exposure434 14.9 Coping with Operating Exposure436 14.10 The Practice of Exposure Management437 Summary438 Questions and Problems439 References440 Appendix 13441 Case Study445 Management of Interest Rate Exposure FRAs, Interest Rate Caps and Floors 447 15.1Introduction 447 15.2 The Nature and Measurement of Interest Rate Exposure448 15.3Forward Rate Agreements (FRAs)449 15.4 Interest Rate Options454 15.5 Interest Rate Caps, Floors and Collars 458 15.6 Valuation of Interest Rate Options462 15.7 Options on Interest Rate Futures463 15.8 Some Recent Innovations466 Summary466 Questions and Problems 467 References468 Appendix 15 470 16 Financial Swaps 475 16.1 Introduction 475 16.2 Major Types of Swap Structures476 16.3 Motivations Underlying Swaps480 16.4 Evolution of Swap Markets485 16.5 Applications of Swaps: Some Illustrations486 16.6 Further Innovations 492 16.7 Interest Rate Swaps in the Indian Market495 16.8 Valuation of Swaps496 Summary500 Questions and Problems 500 References502 Appendix 16504 Case Study517 17 Short-Term Financial Management in a Multinational Corporation 518 17.1Introduction 518 17.2 Short-term Borrowing and Investment 579 17.3 Where should Surplus Cash be Held?520 17.4 Centralised Versus Decentralised Cash Management 522 17.5 Cash Transmission525 Summary526 Questions and Problems526 References527 Appendix 17529 18. International Equity Investment 531 18.1Introduction 531 18.2 Risk and Return from Foreign Equity Investment 533 18.3 The International Capital Asset Pricing Model537 18.4 Equity Financing in the International Markets544 Summary 547 Questions and Problems 547 References548 Appendix 18 550 19. Long-Term Borrowing in the Global Capital Markets 558 19.1Introduction558 19.2 The Major Market Segments562 19.3 The International Financing Decision 573 Summary579 Questions and Problems579 References580 Appendix 19581 20. International Project Appraisal 595 20.1Introduction 595 20.2 A Review of the NPV Approach596 20.3 The Adjusted Present Value (APV) Framework 597 20.4 Project Appraisal in the International Context 599 20.5 Exchange Rate Risk and Cost of Capital603 20.6 Options Approach to Project Appraisal607 20.7 The Practice of Cross-Border Direct Investment Appraisal607 20.8 International Joint Ventures608 Questions and Problems609 References611 Appendix 20 612 Case Study615 21. Accounting Implications of International Activities 617 21.1Accounting for Foreign Currency Transaction618 21.2 Accounting for Foreign Operations625 22. Tax Implications of Internationa] Activities 635 22.1Scope of Tax Charge: Status-Situs Nexus (Sections 5 & 6)635 22.2 Tax Implications of Foreign Activities of an Indian Enterprise 636 22.2 Tax Incentives for Earnings in Foreign Currency 638 22.3 Tax Implications of Activities of Foreign Enterprises in India 639 22.4 Double Taxation Reliefs645 22.5 Transfer Pricing 647 Summary 648 Index650
007061055X
658.1599 / APT
International financial management - Ed.4 - New Delhi Tata McGraw Hill Pub. Co. Ltd. 2007 - xiv,655p.
CONTENTS Preface to the Fourth Edition v Preface to the First Edition vii 1. Financial Management in a Global Context 1 1.1 Why Study International Finance? 1 1.2 The Finance Function6 1.3 The Emerging Challenges 8 IARecent Changes in Global Financial Markets 9 Summary 11 Appendix 112 References 19 2. Objectives of the Firm and the Impact of Risk 20 2.1 Objectives of the Firm 20 2.2Risk Management and Wealth Maximisation 22 2.3A Framework for Financial Decisions 27 Questions and Problems27 References 28 3. The Nature and Measurement of Exposure and Risk 30 3.1 The Nature of Exposure and Risk 30 3.2Exchange Rate and Interest Rate Volatility: Recent Experience 31 3.3Exposure and Risk: A Formal Approach 34 3.4Classification of Foreign Exchange Exposure and Risk 43 3.5Accounting Treatment of Transaction and Translation Exposure 50 3.6Exchange Rates, Interest Rates, Inflation Rates and Exposure 51 3.7Interest Rate Exposure and Risk 52 References 53 Appendix 3 54 Case Study 62 4. The Balance of Payments 63 4.1 What is the Balance of Payments?63 4.2 Accounting Principles in Balance of Payments64 4.3 Valuation and Timing66 4.4 Components of the Balance of Payments67 4.5 Meaning of Deficit and Surplus in the Balance of Payments70 4.6 Why are BOP Statistics Important?72 Summary72 Questions and Problems73 References73 Appendix 475 Case Study82 5. The International Monetary System 83 5.1 Introduction83 5.2 Exchange Rate Regimes84 5.3 The International Monetary Fund (IMF)90 5.4 The Problem of Adjustment96 5.5 The Economic and Monetary Union (EMU)97 Summary99 Questions and Problems99 References100 Appendix 5102 6. Global Financial Markets and Interest Rates 109 6.1 The Global Financial Market109 6.2 Domestic and Offshore Markets110 6.3 Euromarkets111 6.4 Interest Rates in the Global Money Markets 115 6.5 An Overview of Money Market Instruments120 Summary122 Questions and Problems123 References123 Appendix 6124 7. The Foreign Exchange Market 127 7.1 Introduction727 7.2 Structure of the Foreign Exchange Market725 7.3 Types of Transactions and Settlement Dates730 7.4 Exchange Rate Quotations and Arbitrage132 7.5 Forward Quotations144 7.6 Pricing of Short-Date and Broken Date Contracts149 7.7Exchange Rate Regimes and the Foreign Exchange Market in India 157 Questions and Problems 162 References164 Appendix 7166 Case Study 172 8. Forwards, Swaps and Interest Parity 174 8.1 Introduction174 8.2 Arbitrage without Transactions Costs175 8.3 Arbitrage with Transaction Costs180 8.4 Swaps and Deposit Markets187 8.5 Inter-bank Forward Dealing188 8.6 Option Forwards190 8.7 Forward-forward Swaps: Swap Positions191 8.8 Forward Spread Agreements (FSA), Exchange Rate Agreements (ERA) and Forward Exchange Agreements (FXA)194 8.9 Forward Exchange Rates in India198 Summary201 Questions and Problems202 References204 Appendix 8 205 Case Study 220 9. Currency and Interest Rate Futures 221 9.1 Introduction227 9.2 Futures Contracts, Markets and the Trading Process222 9.3 Futures Prices, Expected Spot Prices and Forward Prices227 9.4 Hedging and Speculation with Currency Futures233 9.5 Interest Rate Futures244 9.6 Hedging and Speculation with Interest Rate Futures248 Summary 254 Questions and Problems255 References25 7 Appendix 9259 Case Study264 10. Currency Options 265 10.1 Introduction265 10.2 Options on Spot, Options on Futures and Futures Style Options266 10.3 Options Terminology267 10.4 Price Quotations269 10.5 Elementary Option Strategies270 10.6 Hedging with Currency Options277- 10.7 Principles of Option Pricing280 10.8 Option Pricing Models290 10.9 Option Deltas and Related Concepts: The Greeks293 10.10 Over-the-counter (OTC) Market Practices298 10.11 Futures Options299 10.12 Innovations with Embedded Options300 10.13 Empirical Studies of Option Pricing Models305 10.14 Currency Options in India 306 Summary307 Questions and Problems 307 References310 Appendix 10 313 Case Study 328 11. Exchange Rate Determination and Forecasting 329 11.1Introduction329 11.2 Some Fundamental Equivalence Relationships330 11.3Structural Models of Exchange Rate Determination340 11.4 Exchange Rate Forecasting351 11.5 The Exchange Rate of the Rupee354 Summary357 . Questions and Problems357 References 358 Appendix 11 361 12. Corportae Exposure Management Policy y 373 12.1Introduction573 12.2 The Risk Management Process374 12.3 Objectives of Hedging Policy376 12.4 Organisational Issues377 12.5 Information System for Exposure Management 380 Summary380 Questions and Problems381 References381 13. Hedging, Speculation and Management of Transactions Exposure 383 13.1Introduction383 13.2 Using The Forward Markets for Hedging Transactions Exposure384 13.3 Hedging with the Money Market388 13.4 Hedging with Currency Options390 13.5 Hedging with Currency Futures397 13.6 Internal Hedging Strategies398 13.7 Speculation in Foreign Exchange and Money Markets 404 Summary 405 Questions and Problems405 References409 Appendix 13410 Case Study416 14. Management of Operating Exposure 418 14.1 Introduction418 14.2 Operating Exposure and Real Exchange Rate419 14.3 The Price and Quantity Effects of Exchange Rate Changes: A General Overview 423 14.4 Assesing Operating Exposure: Scenario Approach425 14.5 Operating Exposure: Regression Approach428 14.6 An Exporter Firm429 14.7 An Importer Frrm433 14.8 Currency of Invoicing, Quantity Inertia and Operating Exposure434 14.9 Coping with Operating Exposure436 14.10 The Practice of Exposure Management437 Summary438 Questions and Problems439 References440 Appendix 13441 Case Study445 Management of Interest Rate Exposure FRAs, Interest Rate Caps and Floors 447 15.1Introduction 447 15.2 The Nature and Measurement of Interest Rate Exposure448 15.3Forward Rate Agreements (FRAs)449 15.4 Interest Rate Options454 15.5 Interest Rate Caps, Floors and Collars 458 15.6 Valuation of Interest Rate Options462 15.7 Options on Interest Rate Futures463 15.8 Some Recent Innovations466 Summary466 Questions and Problems 467 References468 Appendix 15 470 16 Financial Swaps 475 16.1 Introduction 475 16.2 Major Types of Swap Structures476 16.3 Motivations Underlying Swaps480 16.4 Evolution of Swap Markets485 16.5 Applications of Swaps: Some Illustrations486 16.6 Further Innovations 492 16.7 Interest Rate Swaps in the Indian Market495 16.8 Valuation of Swaps496 Summary500 Questions and Problems 500 References502 Appendix 16504 Case Study517 17 Short-Term Financial Management in a Multinational Corporation 518 17.1Introduction 518 17.2 Short-term Borrowing and Investment 579 17.3 Where should Surplus Cash be Held?520 17.4 Centralised Versus Decentralised Cash Management 522 17.5 Cash Transmission525 Summary526 Questions and Problems526 References527 Appendix 17529 18. International Equity Investment 531 18.1Introduction 531 18.2 Risk and Return from Foreign Equity Investment 533 18.3 The International Capital Asset Pricing Model537 18.4 Equity Financing in the International Markets544 Summary 547 Questions and Problems 547 References548 Appendix 18 550 19. Long-Term Borrowing in the Global Capital Markets 558 19.1Introduction558 19.2 The Major Market Segments562 19.3 The International Financing Decision 573 Summary579 Questions and Problems579 References580 Appendix 19581 20. International Project Appraisal 595 20.1Introduction 595 20.2 A Review of the NPV Approach596 20.3 The Adjusted Present Value (APV) Framework 597 20.4 Project Appraisal in the International Context 599 20.5 Exchange Rate Risk and Cost of Capital603 20.6 Options Approach to Project Appraisal607 20.7 The Practice of Cross-Border Direct Investment Appraisal607 20.8 International Joint Ventures608 Questions and Problems609 References611 Appendix 20 612 Case Study615 21. Accounting Implications of International Activities 617 21.1Accounting for Foreign Currency Transaction618 21.2 Accounting for Foreign Operations625 22. Tax Implications of Internationa] Activities 635 22.1Scope of Tax Charge: Status-Situs Nexus (Sections 5 & 6)635 22.2 Tax Implications of Foreign Activities of an Indian Enterprise 636 22.2 Tax Incentives for Earnings in Foreign Currency 638 22.3 Tax Implications of Activities of Foreign Enterprises in India 639 22.4 Double Taxation Reliefs645 22.5 Transfer Pricing 647 Summary 648 Index650
007061055X
658.1599 / APT