* denotes advanced material that can be omitted without loss of the basic content of an undergraduate course.
Preface
I. FOREIGN EXCHANGE RATES
FX ratesduction to Foreign Exchange
FX Rate Changes
FX Volatility and FX Exposure
Fundamental FX Supply and Demand
Interbank FX market
Central Banks and Balance of Payments
Speculators
Triangular Arbitrage
2. Foreign Exchange and Purchasing Power
Absolute Purchasing Power Parity (APPP)
FX Misevaluation
The Big Mac Index
OECD and APPP
FX Misvaluation and Trade Imbalances
Relative Purchasing Power Parity (RPPP)
Gold and FX Rates
The Bretton Woods System of Pegged Exchange Rates (1944-1973)
The Euro
Currency Boards and Dollarization
* Trade Finance
3. Forward Foreign Exchange
Long and Short Forward FX Positions
Difference Check Settlement
Forward FX Contracts and Hedging FX Transaction Exposure
The Eurocurrency Market
Synthetic FX Forwards and Money Market Hedging
Market-to-Market Value of a Forward FX Contract
FX Swaps and Futures
* PERLs
4. Foreign Exchange and Interest Rates
Covered Interest Arbitrage
Covered Interest Rate Parity (CIRP)
CIRP in Percentage Form
Uncovered Interest Rate Parity (UIRP)
Interest Rate Changes and FX Rates
FX Forecasting
Siegel's Paradox
* Siegel's Paradox and Forward versus Expected FX Rates
II. LONG-TERM FOREIGN EXCHANGE EXPOSURE
5. Foreign Exchange Operating Exposure
FX Operating Exposure
FX Operating Exposure of a Foreign Subsidiary
FX Revenue and Cost Exposures and FX Pass-Through
Operational Hedging and Operating Leverage
Theoretical Estimation of FX Operating Exposure
* Regression Estimation of FX Exposure
6. Debt and Foreign Exchange Exposure
Should Firms Manage FX Exposure?
Debt Denominated in Foreign Currencies: Eurobonds
Debt and FX Net Cash Flow Exposures
FX Value Exposure
FX Equity Exposure
Hedging FX Equity Exposure with Foreign Currency Debt
FX Net Cash Flow Exposure versus FX Equity Exposure
Debt Maturity
Estimation of FX Equity Exposure
Unlevering Estimated FX Equity Exposure
7. Currency Swaps
World Bank-IBM Swap
Fixed-for-Fixed Currency Swaps
Parallel Loans and Back-to-Back Loans
Swap-Driven Financing
Settlement of Swap Components with Difference Checks
Mark-to-Mark Valuation of Currency Swaps
Off-Market Swaps
Currency Swaps and FX Equity Exposure
Managing FX Equity Exposure with Currency Swaps
* Unlevering Estimated FX Equity Exposure
8. Economic Foreign Exchange Exposure
Economics 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 Competitor
III. COST OF CAPITAL AND CROSS-BORDER INVESTMENTS
9. Global Finance and the Cost of Capital
Returns on Foreign Assets
Depositary Receipts
Cost of Capital
The Capital Asset Pricing Model
Global Equity Beta and the Cost of Equity
Risk-Free Rate
Cost of Debt and the WACC
Systematic FX Risk
* Risk-Adjusted Uncovered Interest Rate Parity
10. Cost of Capital for Overseas Investments
Operating Risk Approach
Accounting Beta Method
Country beta Method
Emerging Market Investments
Cost of Capital in a Foreign Country
Unlevering 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 Currencies
11. Accounting for Foreign Investments and Hedging
FX Translation and SFAS 52
Hedging and SFAS 133
Cash Flow Hedges
Net Investment Hedges
FX Value Exposure vs. FX Accounting Exposure
12. Overseas Investment Decisions
Overseas Acquisition
Production Relocation
Foreign Currency Perspective
Interpreting NPVs of the Currency Perspectives
Equilibrium NPV or Home Currency NPV
Impact of Hedging and Financing Decisions
Expansion of Overseas Capacity
* Forecasts of Corrections of FX Misvaluation
* Asset Values and Correction of FX Misvaluation
Index