International Money and Finance

Description

International Money and Finance, Tenth Edition presents an institutional and historical overview of international finance and international money, illustrating how key economic concepts can illuminate real world problems. Updated throughout, this latest edition functions as a finance book that includes an international macroeconomics perspective in its final section. It emphasizes the newest trends in research, neatly defining the intersection of macro and finance. Successfully used worldwide in both finance and economics departments at both undergraduate and graduate levels, the book features current data, revised test banks, and sharp insights about the practical implications of decision-making.

Offers an open economy macroeconomic perspective
Includes coverage of recent and current events
Features global perspective as well as a view on the United States
Minimizes prerequisites to encourage use by students from varied backgrounds

Front Cover 2
INTERNATIONAL MONEY AND FINANCE 3
INTERNATIONAL MONEY AND FINANCE 5
Copyright 6
Contents 7
Preface 13
Acknowledgments 14
To the Student 15
- Finance and the Multinational Firm 15
- Why Study International Finance? 15
- The Actors 16
- Plan of Attack 17
1 - The Foreign Exchange Market 19
- Foreign Exchange Trading Volume 19
- Geographic Foreign Exchange Rate Activity 20

Front Cover 2
INTERNATIONAL MONEY AND FINANCE 3
INTERNATIONAL MONEY AND FINANCE 5
Copyright 6
Contents 7
Preface 13
Acknowledgments 14
To the Student 15
- Finance and the Multinational Firm 15
- Why Study International Finance? 15
- The Actors 16
- Plan of Attack 17
1 - The Foreign Exchange Market 19
- Foreign Exchange Trading Volume 19
- Geographic Foreign Exchange Rate Activity 20
- Spot Exchange Rates 24
- Currency Arbitrage 27
- Short-Term Foreign Exchange Rate Movements 30
- Long-Term Foreign Exchange Movements 32
- Summary 34
- Exercises 35
- 1 . 1A The Top Foreign Exchange Dealers 36
- Further Reading 36
2 - International Monetary Arrangements 39
- The Gold Standard: 1880 to 1914 39
- The Interwar Period: 1918 to 1939 41
- The Bretton Woods Agreement: 1944 to 1973 42
- Central Bank Intervention During Bretton Woods 43
- FAQ: What Are Special Drawing Rights? 45
  - The Breakdown of the Bretton Woods System 46
  - bksec2_1 46
    - Valuing the SDR currency 46
  - The Transition Years: 1971 to 1973 47
  - International Reserve Currencies 48
  - FAQ: How Big Is the Foreign Reserve Buildup in China? 50
  - Post Bretton Woods: 1973 to the Present 52
  - The Choice of an Exchange Rate System 54
  - Currency Boards and “Dollarization” 57
  - Optimum Currency Areas 61
  - The European Monetary System and the Euro 62
  - Summary 64
  - Exercises 65
  - Further Reading 66
  - 2 . Appendix 2A Current Exchange Practices of Specific Countries 66
- 3 - The Balance of Payments 67
  - Current Account 69
  - Financing the Current Account 72
  - Additional Summary Measures 74
  - Transactions Classifications 75
  - Current Account Disequilibria 78
  - Balance of Payments Equilibrium and Adjustment 80
  - The US Foreign Debt 83
  - How Serious Is the US Foreign Debt? 86
  - Summary 87
  - Exercises 88
  - Reference 88
  - Further Reading 89
- 4 - Forward-Looking Market Instruments 91
  - Forward Rates 92
  - Swaps 93
  - FAQ: What Is a Credit Default Swap? 95
  - Futures 97
  - Options 100
  - Other Forward-Looking Instruments 103
  - Summary 104
  - Exercises 105
  - Further Reading 106
- 5 - Eurocurrency Markets and the LIBOR 107
  - Reasons for Offshore Banking 107
  - Interest Rate Spreads and Risk 109
  - International Banking Facilities 110
  - Offshore Banking Practices 112
  - The BBA LIBOR 115
  - LIBOR 115
  - LIBOR Rigging 116
  - ICE LIBOR 117
  - Summary 118
  - Further Reading 119
  - Exercises 119
- 6 - Exchange Rates, Interest Rates, and Interest Parity 121
  - Interest Parity 121
  - Interest Rates and Inflation 125
  - Exchange Rates, Interest Rates, and Inflation 125
  - Expected Exchange Rates and the Term Structure of Interest Rates 127
  - Summary 130
  - Exercises 130
  - Further Reading 131
  - 6 . Appendix 6A What Are Logarithms, and Why Are They Used in Financial Research? 131
    - What Are Logarithms? 131
    - Why Use Logarithms in Financial Research? 132
  - 7 - Prices and Exchange Rates: Purchasing Power Parity 135
    - Absolute Purchasing Power Parity 136
    - The Big Mac Index 137
    - Relative Purchasing Power Parity 139
    - Time, Inflation, and PPP 140
    - Deviations From PPP 140
    - Overvalued and Undervalued Currencies 144
    - FAQ: What Is the PPP-Adjusted GDP? 146
    - Real Exchange Rates 149
    - Exercises 150
    - Summary 150
    - 7 . Appendix 7.A The Effect of Relative Price Changes on PPP 151
    - Further Reading 151
  - 8 - Foreign Exchange Risk and Forecasting 155
    - Types of Foreign Exchange Risk 155
    - Foreign Exchange Risk Premium 159
    - FAQ: Are Entrepreneurs Risk Lovers? 160
    - Market Efficiency 163
    - Foreign Exchange Forecasting 164
    - Summary 167
    - Exercises 168
    - Further Reading 168
  - 9 - Financial Management of the Multinational Firm 169
    - Financial Control 169
    - Cash Management 171
    - Letters of Credit 174
    - An Example of Trade Financing 176
    - Intrafirm Transfers 177
    - Capital Budgeting 180
    - Summary 182
    - Exercises 183
    - Further Reading 184
    - 9 . Appendix 9A: Present Value 184
  - 10 - International Investment Opportunities 187
    - Portfolio Diversification 187
    - Reasons for Incomplete Portfolio Diversification 191
    - International Investment Opportunities 192
    - The Globalization of Equity Markets 193
    - Foreign Direct Investment 197
    - Capital Flight 199
    - Capital Inflow Issues 200
    - Summary 201
    - Exercises 202
    - Further Reading 202
    - 10 . Appendix 10A American Depositary Receipts 203
  - 11 - International Lending and Crisis 205
    - International Lending 205
    - Causes of Financial Crises 206
    - International Lending and the Great Recession 209
    - International Lending and the Greek Debt Crisis 213
    - IMF Conditionality 215
    - The Role of Corruption 218
    - Country Risk Analysis 219
    - Summary 221
    - Exercises 222
    - Further Reading 223
  - 12 - Determinants of the Balance of Trade 225
    - The Elasticities Approach to the Balance of Trade 225
    - Elasticities and the J-Curve 229
    - Currency Contract Period 230
    - Pass-Through Analysis 232
    - The Marshall-Lerner Condition 236
    - The Evidence From Devaluations 237
    - Absorption Approach to the Balance of Trade 239
    - Summary 240
    - Exercises 241
    - Further Reading 242
  - 13 - The IS-LM-BP Approach 243
    - Internal and External Macroeconomic Equilibrium 243
    - The IS Curve 244
    - The LM Curve 247
    - The BP Curve 249
    - Equilibrium 251
    - Monetary Policy Under Fixed Exchange Rates 251
    - Fiscal Policy Under Fixed Exchange Rates 253
    - Monetary Policy Under Floating Exchange Rates 254
    - Fiscal Policy Under Floating Exchange Rates 255
    - Using the IS-LM-BP Approach: The Asian Financial Crisis 256
    - FAQ: Who Caused the Asian Financial Crisis? 258
    - International Policy Coordination 260
    - Summary 262
    - Exercises 263
    - Further Reading 264
    - 13 . Appendix 13A: The Open-Economy Multiplier 264
  - 14 - The Monetary Approach 269
    - Specie-Flow Mechanism 270
    - The Monetary Approach 270
    - Monetary Approach to the Exchange Rate 276
    - Monetary Approach for a Managed Floating Exchange Rate 277
    - Sterilization 277
    - Sterilized Intervention 279
    - Summary 280
    - Exercises 281
    - Further Reading 282
  - 15 - Extensions to the Monetary Approach to Exchange Rate Determination 283
    - The Role of News 284
    - The Portfolio Balance Approach 284
    - The Trade Balance Approach 285
    - The Overshooting Approach 288
    - The Currency Substitution Approach 291
    - Innovations to Open Economy Macroeconomics 293
    - Summary 295
    - Exercises 296
    - Further Reading 297
  - Index 299
    - B 299
    - C 299
    - A 299
    - D 300
    - E 300
    - F 300
    - G 301
    - H 301
    - I 301
    - J 302
    - L 302
    - M 303
    - P 303
    - N 303
    - O 303
    - T 304
    - R 304
    - U 304
    - S 304
    - V 305
    - W 305

Author's affiliation

Michael Melvin: BlackRock Inc., San Francisco, CA, USA
Stefan Norrbin: Florida State University, Tallahassee, FL, USA

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