Preface and Acknowledgments

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The sixth edition of Global Corporate Finance is suitable for both undergraduate- and graduate-level courses in international finance, no matter where in the world it is taught, because it does not adopt any specific national viewpoint. Moreover, it is self-contained, and it combines theory and applications. The earlier editions of Global Corporate Finance have been adopted by teachers in over 200 colleges, universities, and management development programs worldwide, particularly because the book stresses practical applications in a user-friendly format. As evidence of its wide-ranging appeal, a translation of the fourth edition into Chinese Complex Characters was published in 2001 by a major Chinese publishing company in Taiwan.

A Highly Competitive Set of Supplements

The following textbook-related items are available: a Study Guide, transparency masters of lecture notes in Microsoft® Word and PowerPoint, prepared by the authors, and currency symbols and codes. The Study Guide is provided at Each chapter in the Study Guide includes a list of chapter objectives, detailed chapter outlines, a list of key terms and concepts with definitions, multiple-choice questions, and review problems with solutions for key chapters. The transparency masters of lecture notes, and the currency symbols and codes are also provided on the website.

A comprehensive Instructor's Manual is also available on the website. The manual contains a complete set of ancillary materials, including chapter outlines, chapter objectives, key terms and concepts with definitions, answers to end-of-chapter questions, solutions to end-of-chapter problems, answers to end-of-case questions, a test bank of 500 multiple-choice questions, and transparency masters of key tables and figures from the book.

Adopters of this book can also request a complimentary subscription to Multinational Business Review (MBR). MBR publishes application-oriented articles and cases dealing with international aspects of accounting, finance, and economics. Some MBR articles may be used as supplemental materials for international finance courses.

The Underlying Philosophy

Corporate performance of foreign operations Overall, this book explores two questions: Why do companies increase profits as they boost their foreign presence? Why are they far more successful than domestic firms? By extending the exploration of these questions into detailed operations and strategies, students learn the successful concepts and techniques of multinational firms. For example, students are introduced to seven key principles of global finance. Only then can they grasp the platform on which multinational firms build their strategic plans and, at the same time, sharply define the limited outlook of domestic companies that operate without these seven principles. The sixth edition relentlessly pursues the techniques and concepts that boost the performance of global companies until, almost as if by second nature, students can pinpoint the formula for growth in foreign markets. We then conclude the book by discussing how multinational companies can use international accounting, taxation, and transfer pricing to improve their overall performance even further. This is why we are confident that this book will enable students to develop the requisite skills in international finance, which are essential to improve corporate performance through foreign operations.

Shareholder value and corporate governance Global Corporate Finance treats shareholder value and effective corporate governance as its foundation. Why? The maximization of shareholder value through effective corporate governance is the best way to strengthen the welfare of all corporate constituents. The stockholders are the owners of the company, and they supply the risk capital that protects the welfare of other constituents. Thanks to them, a higher stock price makes it easier for a company to attract additional equity capital. Effective corporate governance is especially crucial to the success of multinational companies with operations all over the world.

Global strategy To be competitive in the new economy, which is characterized by information and global competition, companies need to think globally. Thus, this book emphasizes global strategy in order to equip readers with fresh ideas and concepts for successful business operations on a global basis.

An emphasis on the basics We believe that students learn most effectively when they first achieve a firm grasp of basics. To stress the basics, we have initially devoted several chapters to the fundamental concepts of international finance. Once the basics have been learned, the advanced material flows naturally. As more advanced topics are developed in later chapters, we tie this material back into the fundamentals, in order to facilitate the learning process and to provide students with the big picture.

User-friendliness This book builds on knowledge derived from basic courses in economics and corporate finance. All traditional areas of corporate finance are explored, but from the view point of global financial managers. Tables, figures, and numerical examples clarify discussions of financial concepts and techniques. All end-of-chapter questions and problems are tied or keyed to major topics presented in the chapter. Solutions to most end-of-chapter problems can be found at the end ofthe text. Additionally, we have made an extra effort to clearly define every key term, which we highlight in bold type. This book also provides a quick reference glossary with 400 key terms.

Complete revision Since the first edition of this book, we have applied the same principle in consequent revisions; that is, planning anew rather than simply adding on to what we had already written. This approach has undoubtedly helped us avoid two problems: we have not overlooked important changes in international finance, and we have not unnecessarily increased the length of the book. This sixth edition contains many new cases, new sections, and new practical examples, but it is shorter in length than the previous edition.

A summary of the underlying philosophy Instructors who want students to possess practical, job-oriented skills in international finance will find that Global Corporate Finance speaks to their needs. Corporate recruiters often criticize business schools for turning out graduates who cannot contribute immediately. At the core of this criticism is the belief that, while students are educated in various theories, little emphasis is placed on developing practical skills. For that reason, we have been especially careful to ensure that such criticism will not apply to those who adopt a book that aims at developing students' skills in international finance. In fact, we expect that many students will keep this book as a useful reference work after they have completed their courses.

Learning Features

A case-study approach Students find different ways to master a subject, but we believe that the case-study approach is the most effective. Although this book is not a casebook, it centers on a series of real-life, current, and decision-oriented cases. We provide actual cases from the real world to begin and end each chapter. In other words, all 40 cases are bona fide real cases.

Global Finance in Action In this edition, students will find 50 discussions under the heading of "Global Finance in Action." We further catch the readers' attention by setting these topics apart on the page. These boxes include real-life examples, contemporary issues, and important research findings, as well as new financial instruments and techniques. Among the topics covered in these boxes are the impact of the September 11, 2001 attacks on the world economy, the high cost of protectionism, and the US accounting scandal of 2002 and its impact on corporate governance.

Internet resources We have added a list of appropriate website addresses and a set of Internet questions for every chapter: these are located at the end of the book to help students find specific online sources of information about current company, market, and business events. In addition, we have designed the questions to help students use real-time resources in preparing executive briefings and in solving global finance problems.

Real-world examples Global Corporate Finance focuses primarily on corporate finance practice. Throughout, numerous real-world examples present actual applications of financial theories and techniques. These discussions center on how managerial decision-makers work within a global business with specific areas of responsibility for corporate finance. Specifically, this book is solidly grounded in the theory of modern corporate finance and yet has strong ties to the real world of international finance. We discuss and illustrate just about every theory and concept with actual data and/or practical examples.

Readability This book is readable and easy to understand because it discusses the basic tools and techniques of global finance without a complex treatment of theoretical concepts. Students become frustrated when they have to study mathematical formulas without corresponding numerical examples. Practically all of the formulas used in this book are accompanied by practical, but straightforward, numerical examples. We emphasize readability because we believe that it will motivate readers to pursue further knowledge in international finance.

Pedagogical Features

For ease of learning, each chapter of Global Corporate Finance follows a common format:

• At the beginning of each chapter, a mini-case is provided to achieve two objectives: (1) to build student interest with regard to the upcoming chapter and (2) to introduce a real-world example that will be explained further by theories and research findings presented in the chapter.

• The introductory mini-case is followed by a chapter overview, which describes the chapter themes and the content of the major sections.

• Real-world illustrations, numerical examples, figures, tables, and special boxes are integrated throughout the text to clarify discussions of financial concepts and techniques.

• Key terms and concepts are presented in bold type when they are first introduced. We have also concentrated on clearly defining key terms.

• A short summary provides students with a handy overview of key concepts for review.

• Those references used in each chapter are listed to allow readers to find sources that provide additional information about specific topics discussed in the chapter.

• A generous number of questions and problems support text discussions; they reemphasize definitions, concepts, and the application of theory.

• An analytic mini-case concludes each chapter. The closing case problems serve a different purpose from the opening ones. They present situations for which students must analyze possible actions on the basis of what they have learned in the chapter. In other words, the opening cases enhance interest and recall essential facts; the closing case problems enhance the development of critical reasoning skills. Moreover, Internet exercises have been added at the end of each case problem, to explain how the Internet may be used to access international financial data and obtain information on the case concepts.

To the Student

While you may use this book in whatever way you find most comfortable, the following tips may give your learning experience added value. In each chapter:

• Read the opening case, to view the upcoming material through a real-world example.

• Read the chapter summary.

• Study the key terms and concepts that are highlighted in bold type. The website consolidates all of the key terms and concepts, with end-of-chapter definitions.

• Rework any numerical examples provided in the chapter.

• Read our lecture notes for the chapter.

• Prepare notes using your professor's lectures, lecture notes, and the textbook. Make those notes your own.

Changes to the Sixth Edition

We have carefully revised the sixth edition to reflect changes in global finance. In response to reader suggestions, we have eliminated four chapters, added two new chapters, added 16 new cases, developed 20 Internet resources, and discussed many new practical examples in special boxes under the heading "Global Finance in Action." We have also revised 40 Internet exercises for students who take international finance courses. We have expanded our coverage on shareholder value and corporate governance. We have discussed the introduction of the euro and its impact in several chapters. We have also discussed several new topics in many chapters — the impact of the September 11, 2001, attacks on the world economy, the growing economic power of China, and the 2002 corporate scandal in the United States and its impact on corporate governance. To enhance the international focus of the sixth edition, we have dropped those topics that took specifically American viewpoints while increasing our coverage of emerging markets. Finally, we have replaced the currencies of 12 eurozone countries with other currencies throughout the text, the Instructor's Manual, and the Study Guide. These and other changes are designed to place the focus of the book on managerial finance for multinational companies.

Chapter 1, "Introduction," has been extensively rewritten to eliminate a few existing topics and to discuss three new topics: the corporate governance of a major pension fund as an opening case; the impact of the September 11, 2001, attacks on the world economy; and the orientation of globalization. Chapter 2, "Motives for World Trade and Foreign Investment," examines the impact of economic freedom on consumption, the cost of protectionism, and the fruits of free trade under the World Trade Organization. Chapter 3, "The Balance of Payments," considers the implications of the huge US trade deficit and the trade friction between the USA and China. Chapter 4, "The International Monetary System," discusses the euro as an opening case, compresses the history of the international monetary system, and expands the coverage of the euro.

In chapter 5, "The Foreign-Exchange Market and Parity Conditions," we have replaced both the opening case and the ending cases with new ones, shortened our discussion on the overview of the foreign-exchange market, and, in a box, examined the effectiveness of official exchange intervention. Chapter 6, "Currency Futures and Options," discusses the risk of financial derivatives more explicitly and analyzes the reasons for the decline in the importance of currency futures. We have substantially revised chapter 7, "Financial Swaps," to reflect new information in the opening case, to describe the US accounting scandal of 2002, and to explain the motives for the use of financial swaps. Chapter 8, "Exchange Rate Forecasting," tracks the fluctuation of the US dollar in a box and discusses the reasons for central bank intervention in currency markets.

The fifth edition of this book had only one chapter about foreign-exchange risk management, but the sixth edition discusses this important topic in two separate chapters: chapter 9, "Managing Transaction Exposure and Economic Exposure," and chapter 10, "Translation Exposure Management." This means that we have covered foreign-exchange risk management in its entirety.

Chapter 11, "International Financial Markets," has been completely rewritten to shorten our coverage of a few existing topics and to discuss four new topics: the attractiveness of Asian shares, international interest rate linkages and corporate governance reform as a matter of global concern, new trends in stock markets, and the rotation from debt to equity by developing countries. Chapter 12, "International Banking Issues and Country Risk Analysis," has undergone extensive revision to discuss Argentina's currency crisis, the World Bank, and the World's largest financial companies. Chapter 13, "Financing Foreign Trade," evaluates countertrade in a new section and explains how to collect overdue accounts in a new topic. Chapter 14, "Financing Foreign Investment," examines motives for strategic alliances in a new topic. Chapter 15, "International Working Capital Management," has been shortened. Chapter 16, "International Portfolio Investment," has a new opening case and discusses most topics with updated information. Chapter 17, "Corporate Strategy and Foreign Direct Investment," looks at the reasons for the recent growth in new mergers and discusses the impact of reduced foreign direct investment in the USA. Chapter 18, "International Capital Budgeting Decisions," has been substantially revised to include political risk analysis in a major new section. In chapter 19, "The Cost of Capital for Foreign Projects," a few topics have been dropped but we discuss cultural values and capital structure in a new section. Chapter 20, "Corporate Performance of Foreign Operations," is a new chapter that discusses those factors affecting the corporate performance of foreign operations.

Suk H. Kim and Seung H. Kim


Many colleagues have provided constructive advice critical to the successful development of the sixth edition. We would like to express our thanks to Dean Bahman Mirshab (University of Detroit Mercy) and Dean Ellen F. Harshman (St. Louis University) for their support and encouragement. Our special thanks go to a number of magnanimous reviewers, who provided detailed written suggestions for this edition in a response to the publisher's request for their review. We are also grateful to Dan Baack (St. Louis University) and Stacey Banks (Cleary University) for developing a Study Guide to complement this book. Several students deserve special acknowledgment for their contributions: Eun-Young Choi, Yalda Ghorashyzadeh, and Kala Raman. We also wish to thank the staff of Blackwell Publishing who made many valuable contributions to this edition: Seth Ditchik, Joanna Pyke, Rhonda Pearce, Laura Stearns, and Geoffrey D. Palmer. Finally, and importantly, we thank the following reviewers for their recommendations and insights:

Sadhana Alangar, Cleary University

Mazin Aljanabi, Al Akhawayn University Ifrane, Morocco Stephen F. Borde, University of Central Florida Bruce Brorby, University of Detroit Mercy

Alva Wright Butcher, University of Puget Sound

Hai Yang Chen, Youngstown State University

John S. Cotner, Loyola College, Baltimore

Reid W. Click, George Washington University

Jay Choi, Temple University

Karen Craft Denning, West Virginia University

Rhonda DeLong, Eastern Michigan University

Anthony Diemo, Detroit College of Business

John H. Dunning, Rutgers University

Everton Dockery, Staffordshire University

Brian Fitzpatrick, Rockhurst University

Stanley Flax, St. Thomas University

Ramesh Garg, Eastern Michigan University

Claire Gilmore, Saint Joseph's University

Gary A. Giamartino, University of Detroit Mercy

Gunita Grover, University of Delaware

Nell S. Gullett, University of Tennessee at Martin

Mahfuzul Haque, Indiana State University

Chi-Cheng Hsia, Portland State University

Chang Soo Huh, GS Holdings

Youn-Suk Kim, Kean University of New Jersey

Robert K. Kleiman, Oakland University

Richard Kowalczyk, University of Detroit Mercy

Charles O. Kroncke, University of Wisconsin-Milwaukee

John W. Lang, Cambridge University

Donald Lessard, Massachusetts Institute of Technology

Weiping Liu, University of Wisconsin-Green Bay

Jay R. Marchand, Westminster College

William T. Moore, University of South Carolina

Atsuyuki Naka, University of New Orleans

George Ogum, La Sierra University

Spencer Pack, Connecticut College

Chong S. Pyun, University of Memphis

Harri Ramcharran, Universtiy of Akron

Hongkeun Rim, Shippensburg University

Alan Robinson, Simmons College

Neil Seitz, St. Louis University

Kilman Shin, Ferris State University

Tai S. Shin, Virginia Commonwealth University

Robert Singer, St. Louis University

Martha Soleau, University of Detroit Mercy

Sankar Sundarrajan, Tarleton State University

Peter Tsirigotis, The Securities and Exchange Commission

Robert Uptegraff, Central Michigan University

David VanerLinden, Kent State University

Joseph K. Winsen, University of Newcastle

Regan Whitworth, American University of Armenia

Fred Yeager, St. Louis University

Yeomin Yoon, Seton Hall University

Don Welty, Westminster College

John Zietlow, Lee University

The authors and publishers gratefully acknowledge the following for permission to reproduce copyright material:

"World Value of the Dollar" table: courtesy The Wall Street Journal, July 12, 2004, p. C13.

Reprinted by permission.

Figure 2.2: The Mercosur Trade Group, courtesy The Wall Street Journal, June 16, 2003, p. A13. Reprinted by permission.

Figure 2.3: Progress on Tariffs, from International Business: Environments and Opera tions, 10th edn, by J. D. Daniels, L. H. Radebaugh, and D. P. Sullivan. Copyright © 2004. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ, chapter 6.

Figure 3.3: US Trade Balances with Mexico and China, courtesy The Wall Street Journal,

Aug. 4, 2003 p. A4. Reprinted by permission.

Figure 4.1: Argentine Pesos Per US Dollar, courtesy The Wall Street Journal, July 2,

2003, p. A6. Reprinted by permission.

Figure 4.6: US Dollar's Doldrums Fuel Euro's Rise, courtesy The Wall Street Journal,

Jan. 2, 2004, p. R13. Reprinted by permission.

Table 5.1: Key Currency Cross Rates, courtesy The Wall Street Journal, July 12, 2004, p. C13. Reprinted by permission.

Table 11.1: Money Rates, courtesy The Wall Street Journal, June 22, 2004, p. C16.

Reprinted by permission.

Figure 11.1: Asian Markets Boom, courtesy The Wall Street Journal, July 17, 2003, p. C12. Reprinted by permission.

Figure 13.2: US Arms Exports and Offset Obligations, courtesy The Wall Street Journal,

April 20, 2000, p. A18 (from the US Department of Commerce). Reprinted by permission.

Figure 15.1: A Hot Spot, courtesy The Wall Street Journal, June 29, 2000, p, A21.

Reprinted by permission.

Figure 16.1: All for One, and One for All, courtesy The Wall Street Journal, Sept. 8, 2003, p. A10. Reprinted by permission.

Figure 16.8: Americans Look Abroad, courtesy The Wall Street Journal, July 2, 2001, p. C20. Reprinted by permission.

Figure 16.9: The Money Pours In, courtesy The Wall Street Journal, July 7, 2004, p. C1.

Reprinted by permission.

Figure 16.10: DaimlerChrysler's Dilemma, from J. Ball, "DaimlerChrysler Frets over Loss of US Shareholders," The Wall Street Journal, Mar. 24, 1999, p. B4. Reprinted by permission.

Figure 16.11: "The Struggling Chrysler Group," courtesy The Detroit News, Feb. 29,

2001, p. A4. Reprinted by permission.

Figure 17.5: Closely Held, courtesy The Wall Street Journal, Apr. 26, 1999, p. R15.

Reprinted by permission.

Figure 17.6: A Pickup in Merger Activity, courtesy The Wall Street Journal, Jan. 2, 2004, p. R15. Reprinted by permission.

Figure 18.2: Expropriation Acts, by Year, from C. R. Kennedy, "Multinational Corpo rations and Expropriation Risk," Multinational Business Review, Spring 1993, p. 45. Reprinted by permission of Suk Kim.

Case Problem 10: Dell Mercosur, from International Business Environments and Operations, 10th edn, by J. D. Daniels, L. H. Radebaugh, and D. P. Sullivan. Copyright © 2004. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ, pp. 623-6.

The publishers apologize for any errors or omissions in the above list and would be grateful to be notified of any corrections that should be incorporated in the next edition or reprint of this book.

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