International Financial Economics: Corporate Decisions in Global Markets

Hardcover | November 24, 2005

byThomas J. OBrien

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Completely updated and revised, the second edition of International Financial Economics: Corporate Decisions in Global Markets applies the principles of financial economics to explain how international corporate finance decisions are made in the real world. Written from a practical, financial perspective versus one of pure economic theory, the text is divided into three sections. The first section provides a comprehensive discussion of exchange rates. The next section offers an in-depth look at a firm's foreign exchange exposure measurement andhedging. The material highlights the connection between foreign exchange exposure in profit and foreign exchange exposure in equity, as well as the impact of foreign currency debt and currency swaps. The third section examines overseas investment decisions in both countries integrated with theglobal financial market and those still segmented from it. Coverage emphasizes the cost of capital and accounting for overseas investments and hedging of foreign exchange risk. International Financial Economics: Corporate Decisions in Global Markets is ideal for advanced undergraduate and graduate courses in global financial management. Features * Employs a practical, financial perspective with real-world applications * Includes expanded material on currency swaps to show their role in foreign exchange exposure management * Offers a detailed description of economic foreign exchange exposure * Provides additional material on overseas investment decisions when exchange rates are not correctly valued

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From the Publisher

Completely updated and revised, the second edition of International Financial Economics: Corporate Decisions in Global Markets applies the principles of financial economics to explain how international corporate finance decisions are made in the real world. Written from a practical, financial perspective versus one of pure economic th...

Thomas J. O'Brien is Professor and Head of the Finance Department at the University of Connecticut. He is the author and coauthor of several books on financial management and has published numerous articles in professional journals including the Journal of Finance, Financial Management, European Financial Management, and the Financial...

other books by Thomas J. OBrien

Format:HardcoverDimensions:320 pages, 7.6 × 9.41 × 0.91 inPublished:November 24, 2005Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0195175042

ISBN - 13:9780195175042

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Table of Contents

* denotes advanced material that can be omitted without loss of the basic content of an undergraduate course.PrefaceI. FOREIGN EXCHANGE RATESFX ratesduction to Foreign ExchangeFX Rate ChangesFX Volatility and FX ExposureFundamental FX Supply and DemandInterbank FX marketCentral Banks and Balance of PaymentsSpeculatorsTriangular Arbitrage2. Foreign Exchange and Purchasing PowerAbsolute Purchasing Power Parity (APPP)FX MisevaluationThe Big Mac IndexOECD and APPPFX Misvaluation and Trade ImbalancesRelative Purchasing Power Parity (RPPP)Gold and FX RatesThe Bretton Woods System of Pegged Exchange Rates (1944-1973)The EuroCurrency Boards and Dollarization* Trade Finance3. Forward Foreign ExchangeLong and Short Forward FX PositionsDifference Check SettlementForward FX Contracts and Hedging FX Transaction ExposureThe Eurocurrency MarketSynthetic FX Forwards and Money Market HedgingMarket-to-Market Value of a Forward FX ContractFX Swaps and Futures* PERLs4. Foreign Exchange and Interest RatesCovered Interest ArbitrageCovered Interest Rate Parity (CIRP)CIRP in Percentage FormUncovered Interest Rate Parity (UIRP)Interest Rate Changes and FX RatesFX ForecastingSiegel's Paradox* Siegel's Paradox and Forward versus Expected FX RatesII. LONG-TERM FOREIGN EXCHANGE EXPOSURE5. Foreign Exchange Operating ExposureFX Operating ExposureFX Operating Exposure of a Foreign SubsidiaryFX Revenue and Cost Exposures and FX Pass-ThroughOperational Hedging and Operating LeverageTheoretical Estimation of FX Operating Exposure* Regression Estimation of FX Exposure6. Debt and Foreign Exchange ExposureShould Firms Manage FX Exposure?Debt Denominated in Foreign Currencies: EurobondsDebt and FX Net Cash Flow ExposuresFX Value ExposureFX Equity ExposureHedging FX Equity Exposure with Foreign Currency DebtFX Net Cash Flow Exposure versus FX Equity ExposureDebt MaturityEstimation of FX Equity ExposureUnlevering Estimated FX Equity Exposure7. Currency SwapsWorld Bank-IBM SwapFixed-for-Fixed Currency SwapsParallel Loans and Back-to-Back LoansSwap-Driven FinancingSettlement of Swap Components with Difference ChecksMark-to-Mark Valuation of Currency SwapsOff-Market SwapsCurrency Swaps and FX Equity ExposureManaging FX Equity Exposure with Currency Swaps* Unlevering Estimated FX Equity Exposure8. Economic Foreign Exchange ExposureEconomics of Foreign Exchange, Price, and Volume* Compound FX Revenue Exposure* Competitive FX Revenue Exposure* FX Revenue Exposure: Domestic Firm with a Foreign Competitor* FX Operating Exposure of a Foreign Subsidiary with a Foreign CompetitorIII. COST OF CAPITAL AND CROSS-BORDER INVESTMENTS9. Global Finance and the Cost of CapitalReturns on Foreign AssetsDepositary ReceiptsCost of CapitalThe Capital Asset Pricing ModelGlobal Equity Beta and the Cost of EquityRisk-Free RateCost of Debt and the WACCSystematic FX Risk* Risk-Adjusted Uncovered Interest Rate Parity10. Cost of Capital for Overseas InvestmentsOperating Risk ApproachAccounting Beta MethodCountry beta MethodEmerging Market InvestmentsCost of Capital in a Foreign CountryUnlevering Equity Betas: Basic Case* WACC and Operating Risk* Unlevering Equity Betas: General Case* Pure Play Proxy Method* FX Exposure and Beta* Risk and return in Non-US Dollar Currencies11. Accounting for Foreign Investments and HedgingFX Translation and SFAS 52Hedging and SFAS 133Cash Flow HedgesNet Investment HedgesFX Value Exposure vs. FX Accounting Exposure12. Overseas Investment DecisionsOverseas AcquisitionProduction RelocationForeign Currency PerspectiveInterpreting NPVs of the Currency PerspectivesEquilibrium NPV or Home Currency NPVImpact of Hedging and Financing DecisionsExpansion of Overseas Capacity* Forecasts of Corrections of FX Misvaluation* Asset Values and Correction of FX MisvaluationIndex

Editorial Reviews

"This text provides an exciting, fresh approach to international financial management. Masterfully written by a recognized leader in the field, International Financial Economics is unique for its clarity, creativity, and coverage. O'Brien explains the material thoroughly, yet concisely, byrelying on economic intuition and artfully weaving together theoretical concepts and fascinating examples. The book will be appealing to a variety of audiences. It is appropriately sophisticated for MBA students, but accessible to undergraduates, and up-to-date for practitioners in finance. I highlyrecommend this text for anyone seeking answers to the complex problems in international finance."--Reid W. Click, George Washington University