International Financial Management 13Th Edition Jeff Madura Full Chapter

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International Financial
Management
International Financial
Management
13th Edition
Jeff Madura
Florida Atlantic University
Australia • Brazil • Mexico • Singapore • United Kingdom • United States
International Financial Management, © 2018, 2015 Cengage Learning
13th Edition
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Dedicated to my mother Irene
Brief Contents
PART 1: The International Financial Environment 1

1 Multinational Financial Management: An Overview 3
2 International Flow of Funds 33
3 International Financial Markets 63
4 Exchange Rate Determination 103
5 Currency Derivatives 131
PART 2: Exchange Rate Behavior 185

6 Government Influence on Exchange Rates 187
7 International Arbitrage and Interest Rate Parity 227
8 Relationships among Inflation, Interest Rates, and Exchange Rates 257
PART 3: Exchange Rate Risk Management 295

9 Forecasting Exchange Rates 297
10 Measuring Exposure to Exchange Rate Fluctuations 325
11 Managing Transaction Exposure 355
12 Managing Economic Exposure and Translation Exposure 393
PART 4: Long-Term Asset and Liability Management 415

13 Direct Foreign Investment 417
14 Multinational Capital Budgeting 437
15 International Corporate Governance and Control 477
16 Country Risk Analysis 503
17 Multinational Capital Structure and Cost of Capital 527
18 Long-Term Debt Financing 551
PART 5: Short-Term Asset and Liability Management 575

19 Financing International Trade 577
20 Short-Term Financing 595
21 International Cash Management 611
Appendix A: Answers to Self-Test Questions 643
Appendix B: Supplemental Cases 656
Appendix C: Using Excel to Conduct Analysis 676
Appendix D: International Investing Project 684
Appendix E: Discussion in the Boardroom 687
Appendix F: Use of Bitcoin to Conduct International Transactions 695
Glossary 697
Index 705
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 vii
Contents
Preface, xix
About the Author, xxvi
PART 1: The International Financial Environment 1

1: MULTINATIONAL FINANCIAL MANAGEMENT: AN OVERVIEW 3
1-1 Managing the MNC, 4
1-1a How Business Disciplines Are Used to Manage the MNC, 4
1-1b Agency Problems, 4
1-1c Management Structure of an MNC, 6
1-2 Why MNCs Pursue International Business, 8
1-2a Theory of Comparative Advantage, 8
1-2b Imperfect Markets Theory, 8
1-2c Product Cycle Theory, 9
1-3 Methods to Conduct International Business, 10
1-3a International Trade, 10
1-3b Licensing, 10
1-3c Franchising, 11
1-3d Joint Ventures, 11
1-3e Acquisitions of Existing Operations, 11
1-3f Establishment of New Foreign Subsidiaries, 12
1-3g Summary of Methods, 12
1-4 Valuation Model for an MNC, 13
1-4a Domestic Model, 14
1-4b Multinational Model, 14
1-4c Uncertainty Surrounding an MNC’s Cash Flows, 17
1-4d Summary of International Effects, 20
1-4e How Uncertainty Affects the MNC’s Cost of Capital, 21
1-5 Organization of the Text, 21
2: INTERNATIONAL FLOW OF FUNDS 33

2-1 Balance of Payments, 33
2-1a Current Account, 33
2-1b Financial Account, 35
2-1c Capital Account, 36
2-1d Relationship between the Accounts, 37
2-2 Growth in International Trade, 37
2-2a Events That Increased Trade Volume, 37
2-2b Impact of Outsourcing on Trade, 39
2-2c Trade Volume among Countries, 40
2-2d Trend in U.S. Balance of Trade, 42
2-3 Factors Affecting International Trade Flows, 43
2-3a Cost of Labor, 43
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 ix
x Contents
2-3b Inflation, 44
2-3c National Income, 44
2-3d Credit Conditions, 44
2-3e Government Policies, 44
2-3f Exchange Rates, 48
2-4 International Capital Flows, 52
2-4a Factors Affecting Direct Foreign Investment, 52
2-4b Factors Affecting International Portfolio Investment, 53
2-4c Impact of International Capital Flows, 53
2-5 Agencies That Facilitate International Flows, 55
2-5a International Monetary Fund, 55
2-5b World Bank, 56
2-5c World Trade Organization, 57
2-5d International Finance Corporation, 57
2-5e International Development Association, 57
2-5f Bank for International Settlements, 57
2-5g OECD, 58
2-5h Regional Development Agencies, 58
3: INTERNATIONAL FINANCIAL MARKETS 63

3-1 Foreign Exchange Market, 63
3-1a History of Foreign Exchange, 63
3-1b Foreign Exchange Transactions, 64
3-1c Foreign Exchange Quotations, 70
3-1d Derivative Contracts in the Foreign Exchange Market, 74
3-2 International Money Market, 75
3-2a European and Asian Money Markets, 76
3-2b Money Market Interest Rates among Currencies, 76
3-2c Risk of International Money Market Securities, 77
3-3 International Credit Market, 78
3-3a Syndicated Loans in the Credit Market, 78
3-3b Bank Regulations in the Credit Market, 79
3-3c Impact of the Credit Crisis, 79
3-4 International Bond Market, 80
3-4a Eurobond Market, 80
3-4b Development of Other Bond Markets, 81
3-4c Risk of International Bonds, 81
3-4d Impact of the Greece Crisis, 82
3-5 International Stock Markets, 83
3-5a Issuance of Stock in Foreign Markets, 83
3-5b Issuance of Foreign Stock in the United States, 84
3-5c Comparing the Size among Stock Markets, 85
3-5d How Governance Varies among Stock Markets, 86
3-5e Integration of International Stock Markets and Credit Markets, 87
3-6 How Financial Markets Serve MNCs, 88
Appendix 3: Investing in International Financial Markets, 95
4: EXCHANGE RATE DETERMINATION 103

4-1 Measuring Exchange Rate Movements, 103
4-2 Exchange Rate Equilibrium, 104
4-2a Demand for a Currency, 105
4-2b Supply of a Currency for Sale, 106
Contents xi
4-2c Equilibrium Exchange Rate, 106

4-2d Change in the Equilibrium Exchange Rate, 107
4-3 Factors That Influence Exchange Rates, 108
4-3a Relative Inflation Rates, 109
4-3b Relative Interest Rates, 110
4-3c Relative Income Levels, 111
4-3d Government Controls, 112
4-3e Expectations, 112
4-3f Interaction of Factors, 114
4-3g Influence of Factors across Multiple Currency Markets, 115
4-3h Impact of Liquidity on Exchange Rate Adjustments, 116
4-4 Movements in Cross Exchange Rates, 116
4-5 Capitalizing on Expected Exchange Rate Movements, 117
4-5a Institutional Speculation Based on Expected Appreciation, 118
4-5b Institutional Speculation Based on Expected Depreciation, 119
4-5c Speculation by Individuals, 120
4-5d The “Carry Trade”, 120
5: CURRENCY DERIVATIVES 131

5-1 Forward Market, 131
5-1a How MNCs Use Forward Contracts, 131
5-1b Bank Quotations on Forward Rates, 132
5-1c Premium or Discount on the Forward Rate, 133
5-1d Movements in the Forward Rate over Time, 134
5-1e Offsetting a Forward Contract, 134
5-1f Using Forward Contracts for Swap Transactions, 135
5-1g Non-Deliverable Forward Contracts, 135
5-2 Currency Futures Market, 136
5-2a Contract Specifications, 136
5-2b Trading Currency Futures, 137
5-2c Credit Risk of Currency Futures Contracts, 138
5-2d Comparing Currency Futures and Forward Contracts, 138
5-2e How MNCs Use Currency Futures, 139
5-2f Speculation with Currency Futures, 141
5-3 Currency Options Market, 142
5-3a Currency Options Exchanges, 142
5-3b Over-the-Counter Currency Options Market, 142
5-4 Currency Call Options, 142
5-4a Factors Affecting Currency Call Option Premiums, 143
5-4b How MNCs Use Currency Call Options, 144
5-4c Speculating with Currency Call Options, 145
5-5 Currency Put Options, 148
5-5a Factors Affecting Currency Put Option Premiums, 149
5-5b How MNCs Use Currency Put Options, 149
5-5c Speculating with Currency Put Options, 150
5-6 Other Forms of Currency Options, 152
5-6a Conditional Currency Options, 152
5-6b European Currency Options, 154
Appendix 5A: Currency Option Pricing, 165
Appendix 5B: Currency Option Combinations, 169
Part 1 Integrative Problem: The International Financial Environment, 183
xii Contents
PART 2: Exchange Rate Behavior 185

6: GOVERNMENT INFLUENCE ON EXCHANGE RATES 187
6-1 Exchange Rate Systems, 187
6-1a Fixed Exchange Rate System, 187
6-1b Freely Floating Exchange Rate System, 189
6-1c Managed Float Exchange Rate System, 190
6-1d Pegged Exchange Rate System, 191
6-1e Dollarization, 197
6-1f Black Markets for Currencies, 197
6-2 A Single European Currency, 198
6-2a Monetary Policy in the Eurozone, 198
6-2b Impact on Firms in the Eurozone, 199
6-2c Impact on Financial Flows in the Eurozone, 199
6-2d Impact of Eurozone Country Crisis on Other Eurozone Countries, 199
6-2e Impact of a Country Abandoning the Euro, 202
6-3 Direct Intervention, 203
6-3a Reasons for Direct Intervention, 203
6-3b The Direct Intervention Process, 204
6-3c Direct Intervention as a Policy Tool, 207
6-3d Speculating on Direct Intervention, 208
6-4 Indirect Intervention, 209
6-4a Government Control of Interest Rates, 209
6-4b Government Use of Foreign Exchange Controls, 210
Appendix 6: Government Intervention during the Asian Crisis, 218
7: INTERNATIONAL ARBITRAGE AND INTEREST RATE PARITY 227

7-1 Locational Arbitrage, 227
7-1a Gains from Locational Arbitrage, 228
7-1b Realignment due to Locational Arbitrage, 228
7-2 Triangular Arbitrage, 229
7-2a Gains from Triangular Arbitrage, 230
7-2b Realignment due to Triangular Arbitrage, 232
7-3 Covered Interest Arbitrage, 232
7-3a Covered Interest Arbitrage Process, 232
7-3b Realignment due to Covered Interest Arbitrage, 234
7-3c Arbitrage Example When Accounting for Spreads, 235
7-3d Covered Interest Arbitrage by Non-U.S. Investors, 236
7-3e Comparing Different Types of Arbitrage, 236
7-4 Interest Rate Parity (IRP), 236
7-4a Derivation of Interest Rate Parity, 237
7-4b Determining the Forward Premium, 238
7-4c Graphic Analysis of Interest Rate Parity, 240
7-4d How to Test Whether Interest Rate Parity Holds, 242
7-4e Does Interest Rate Parity Hold?, 242
7-4f Considerations When Assessing Interest Rate Parity, 243
7-5 Variation in Forward Premiums, 244
7-5a Forward Premiums across Maturities, 244
7-5b Changes in Forward Premiums over Time, 245
Contents xiii
8: RELATIONSHIPS AMONG INFLATION, INTEREST RATES,

AND EXCHANGE RATES 257
8-1 Purchasing Power Parity (PPP), 257
8-1a Interpretations of Purchasing Power Parity, 257
8-1b Rationale behind Relative PPP Theory, 258
8-1c Derivation of Purchasing Power Parity, 258
8-1d Using PPP to Estimate Exchange Rate Effects, 259
8-1e Graphic Analysis of Purchasing Power Parity, 260
8-1f Testing the Purchasing Power Parity Theory, 263
8-1g Does Purchasing Power Parity Exist?, 265
8-2 International Fisher Effect (IFE), 266
8-2a Deriving a Country’s Expected Inflation Rate, 266
8-2b Estimating the Expected Exchange Rate Movement, 267
8-2c Implications of the International Fisher Effect, 267
8-2d Derivation of the International Fisher Effect, 270
8-2e Graphic Analysis of the International Fisher Effect, 272
8-2f Testing the International Fisher Effect, 273
8-2g Limitations of the IFE Theory, 274
8-2h IFE Theory versus Reality, 275
8-2i Comparison of IRP, PPP, and IFE Theories, 275
Part 2 Integrative Problem: Exchange Rate Behavior, 286
Midterm Self-Exam, 287
PART 3: Exchange Rate Risk Management 295

9: FORECASTING EXCHANGE RATES 297
9-1 Why Firms Forecast Exchange Rates, 297
9-2 Forecasting Techniques, 299
9-2a Technical Forecasting, 299
9-2b Fundamental Forecasting, 299
9-2c Market-Based Forecasting, 303
9-2d Mixed Forecasting, 306
9-3 Assessment of Forecast Performance, 307
9-3a Measurement of Forecast Error, 307
9-3b Forecast Errors among Time Horizons, 308
9-3c Forecast Errors over Time Periods, 308
9-3d Forecast Errors among Currencies, 308
9-3e Comparing Forecast Errors among Forecast Techniques, 309
9-3f Graphic Evaluation of Forecast Bias, 309
9-3g Statistical Test of Forecast Bias, 311
9-3h Shifts in Forecast Bias over Time, 312
9-4 Accounting for Uncertainty Surrounding Forecasts, 312
9-4a Sensitivity Analysis Applied to Fundamental Forecasting, 313
9-4b Interval Forecasts, 313
10: MEASURING EXPOSURE TO EXCHANGE RATE FLUCTUATIONS 325

10-1 Relevance of Exchange Rate Risk, 325
10-2 Transaction Exposure, 326
10-2a Estimating “Net” Cash Flows in Each Currency, 328
10-2b Transaction Exposure of an MNC’s Portfolio, 329
xiv Contents
10-2c Transaction Exposure Based on Value at Risk, 332

10-3 Economic Exposure, 335
10-3a Exposure to Foreign Currency Depreciation, 336
10-3b Exposure to Foreign Currency Appreciation, 337
10-3c Measuring Economic Exposure, 337
10-4 Translation Exposure, 340
10-4a Determinants of Translation Exposure, 340
10-4b Exposure of an MNC’s Stock Price to Translation Effects, 342
11: MANAGING TRANSACTION EXPOSURE 355

11-1 Policies for Hedging Transaction Exposure, 355
11-1a Hedging Most of the Exposure, 355
11-1b Selective Hedging, 355
11-2 Hedging Exposure to Payables, 356
11-2a Forward or Futures Hedge on Payables, 356
11-2b Money Market Hedge on Payables, 357
11-2c Call Option Hedge on Payables, 357
11-2d Comparison of Techniques for Hedging Payables, 360
11-2e Evaluating Past Decisions on Hedging Payables, 363
11-3 Hedging Exposure to Receivables, 363
11-3a Forward or Futures Hedge on Receivables, 363
11-3b Money Market Hedge on Receivables, 364
11-3c Put Option Hedge on Receivables, 364
11-3d Comparison of Techniques for Hedging Receivables, 367
11-3e Evaluating Past Decisions on Hedging Receivables, 370
11-3f Summary of Hedging Techniques, 370
11-4 Limitations of Hedging, 371
11-4a Limitation of Hedging an Uncertain Payment, 371
11-4b Limitation of Repeated Short-Term Hedging, 371
11-5 Alternative Methods to Reduce Exchange Rate Risk, 373
11-5a Leading and Lagging, 374
11-5b Cross-Hedging, 374
11-5c Currency Diversification, 374
Appendix 11: Nontraditional Hedging Techniques, 388
12: MANAGING ECONOMIC EXPOSURE AND TRANSLATION

EXPOSURE 393
12-1 Managing Economic Exposure, 393
12-1a Assessing Economic Exposure, 394
12-1b Restructuring to Reduce Economic Exposure, 395
12-1c Limitations of Restructuring Intended to Reduce Economic Exposure, 398
12-2 A Case Study on Hedging Economic Exposure, 398
12-2a Savor Co.’s Assessment of Economic Exposure, 398
12-2b Possible Strategies for Hedging Economic Exposure, 400
12-3 Managing Exposure to Fixed Assets, 401
12-4 Managing Translation Exposure, 402
12-4a Hedging Translation Exposure with Forward Contracts, 403
12-4b Limitations of Hedging Translation Exposure, 403
Part 3 Integrative Problem: Exchange Risk Management, 412
Contents xv
PART 4: Long-Term Asset and Liability Management 415

13: DIRECT FOREIGN INVESTMENT 417
13-1 Motives for Direct Foreign Investment, 417
13-1a Revenue-Related Motives, 417
13-1b Cost-Related Motives, 418
13-1c Comparing Benefits of DFI among Countries, 420
13-2 Benefits of International Diversification, 421
13-2a Diversification Analysis of International Projects, 422
13-2b Diversification among Countries, 424
13-3 Host Government Impact on DFI, 424
13-3a Incentives to Encourage DFI, 425
13-3b Barriers to DFI, 425
13-4 Assessing Potential DFI, 427
13-4a A Case Study of Assessing Potential DFI, 427
13-4b Evaluating DFI Opportunities That Pass the First Screen, 429
14: MULTINATIONAL CAPITAL BUDGETING 437

14-1 Subsidiary versus Parent Perspective, 437
14-1a Tax Differentials, 437
14-1b Restrictions on Remitted Earnings, 438
14-1c Exchange Rate Movements, 438
14-1d Summary of Factors That Distinguish the Parent Perspective, 438
14-2 Input for Multinational Capital Budgeting, 439
14-3 Multinational Capital Budgeting Example, 441
14-3a Background, 441
14-3b Analysis, 442
14-4 Other Factors to Consider, 443
14-4a Exchange Rate Fluctuations, 444
14-4b Inflation, 447
14-4c Financing Arrangement, 447
14-4d Blocked Funds, 450
14-4e Uncertain Salvage Value, 451
14-4f Impact of Project on Prevailing Cash Flows, 452
14-4g Host Government Incentives, 453
14-4h Real Options, 453
14-5 Adjusting Project Assessment for Risk, 454
14-5a Risk-Adjusted Discount Rate, 454
14-5b Sensitivity Analysis, 454
14-5c Simulation, 457
Appendix 14: Incorporating International Tax Law in Multinational
Capital Budgeting, 469
15: INTERNATIONAL CORPORATE GOVERNANCE AND CONTROL 477

15-1 International Corporate Governance, 477
15-1a Governance by Board Members, 477
15-1b Governance by Institutional Investors, 478
15-1c Governance by Shareholder Activists, 478
15-2 International Corporate Control, 479
15-2a Motives for International Acquisitions, 479
15-2b Trends in International Acquisitions, 479
xvi Contents
15-2c Barriers to International Corporate Control, 480

15-2d Model for Valuing a Foreign Target, 481
15-3 Factors Affecting Target Valuation, 482
15-3a Target-Specific Factors, 482
15-3b Country-Specific Factors, 483
15-4 A Case Study of Valuing a Foreign Target, 484
15-4a International Screening Process, 484
15-4b Estimating the Target’s Value, 485
15-4c Uncertainty Surrounding the Target’s Valuation, 487
15-4d Changes in Market Valuation of Target over Time, 487
15-5 Disparity in Foreign Target Valuations, 488
15-5a Expected Cash Flows of the Foreign Target, 488
15-5b Exchange Rate Effects on Remitted Earnings, 489
15-5c Required Return of Acquirer, 489
15-6 Other Corporate Control Decisions, 490
15-6a International Partial Acquisitions, 490
15-6b International Acquisitions of Privatized Businesses, 490
15-6c International Divestitures, 491
15-7 Corporate Control Decisions as Real Options, 492
15-7a Call Option on Real Assets, 492
15-7b Put Option on Real Assets, 493
16: COUNTRY RISK ANALYSIS 503

16-1 Country Risk Characteristics, 503
16-1a Political Risk Characteristics, 503
16-1b Financial Risk Characteristics, 506
16-2 Measuring Country Risk, 507
16-2a Techniques for Assessing Country Risk, 508
16-2b Deriving a Country Risk Rating, 509
16-2c Comparing Risk Ratings among Countries, 511
16-3 Incorporating Risk in Capital Budgeting, 512
16-3a Adjustment of the Discount Rate, 512
16-3b Adjustment of the Estimated Cash Flows, 512
16-3c Analysis of Existing Projects, 515
16-4 Preventing Host Government Takeovers, 516
16-4a Use a Short-Term Horizon, 516
16-4b Rely on Unique Supplies or Technology, 516
16-4c Hire Local Labor, 516
16-4d Borrow Local Funds, 516
16-4e Purchase Insurance, 517
16-4f Use Project Finance, 517
17: MULTINATIONAL CAPITAL STRUCTURE AND COST OF CAPITAL 527

17-1 Components of Capital, 527
17-1a Retained Earnings, 527
17-1b Sources of Debt, 528
17-1c External Sources of Equity, 529
17-2 The MNC’s Capital Structure Decision, 530
17-2a Influence of Corporate Characteristics, 531
17-2b Influence of Host Country Characteristics, 531
17-2c Response to Changing Country Characteristics, 532
Contents xvii
17-3 Subsidiary versus Parent Capital Structure Decisions, 533

17-3a Impact of Increased Subsidiary Debt Financing, 533
17-3b Impact of Reduced Subsidiary Debt Financing, 533
17-3c Limitations in Offsetting a Subsidiary’s Leverage, 534
17-4 Multinational Cost of Capital, 534
17-4a MNC’s Cost of Debt, 534
17-4b MNC’s Cost of Equity, 534
17-4c Estimating an MNC’s Cost of Capital, 535
17-4d Comparing Costs of Debt and Equity, 535
17-4e Cost of Capital for MNCs versus Domestic Firms, 536
17-4f Cost-of-Equity Comparison Using the CAPM, 537
17-5 Cost of Capital across Countries, 539
17-5a Country Differences in the Cost of Debt, 540
17-5b Country Differences in the Cost of Equity, 541
18: LONG-TERM DEBT FINANCING 551

18-1 Debt Denomination Decision of Foreign Subsidiaries, 551
18-1a Foreign Subsidiary Borrows Its Local Currency, 551
18-1b Foreign Subsidiary Borrows Dollars, 553
18-2 Debt Denomination Analysis: A Case Study, 553
18-2a Identifying Debt Denomination Alternatives, 553
18-2b Analyzing Debt Denomination Alternatives, 554
18-3 Loans Facilitate Financing, 555
18-3a Using Currency Swaps, 555
18-3b Using Parallel Loans, 556
18-4 Debt Maturity Decision, 559
18-4a Assessment of the Yield Curve, 559
18-4b Financing Costs of Loans with Different Maturities, 559
18-5 Fixed versus Floating Rate Debt Decision, 560
18-5a Financing Costs of Fixed versus Floating Rate Loans, 560
18-5b Hedging Interest Payments with Interest Rate Swaps, 561
Part 4 Integrative Problem: Long-Term Asset and Liability Management, 572
PART 5: Short-Term Asset and Liability Management 575

19: FINANCING INTERNATIONAL TRADE 577
19-1 Payment Methods for International Trade, 577
19-1a Prepayment, 577
19-1b Letters of Credit, 578
19-1c Drafts, 580
19-1d Consignment, 581
19-1e Open Account, 581
19-1f Impact of the Credit Crisis on Payment Methods, 581
19-2 Trade Finance Methods, 581
19-2a Accounts Receivable Financing, 582
19-2b Factoring, 582
19-2c Letters of Credit (L/Cs), 583
19-2d Banker’s Acceptances, 583
19-2e Medium-Term Capital Goods Financing (Forfaiting), 586
19-2f Countertrade, 586
xviii Contents
19-3 Agencies That Facilitate International Trade, 587

19-3a Export-Import Bank of the United States, 587
19-3b Private Export Funding Corporation, 589
19-3c Overseas Private Investment Corporation, 589
20: SHORT-TERM FINANCING 595

20-1 Sources of Foreign Financing, 595
20-1a Internal Short-Term Financing, 595
20-1b External Short-Term Financing, 596
20-1c Access to Funding during a Credit Crisis, 596
20-2 Financing with a Foreign Currency, 596
20-2a Motive for Financing with a Foreign Currency, 597
20-2b Potential Cost Savings from Financing with a Foreign Currency, 597
20-2c Risk of Financing with a Foreign Currency, 598
20-2d Hedging the Foreign Currency Borrowed, 599
20-2e Reliance on the Forward Rate for Forecasting, 600
20-2f Use of Probability Distributions to Enhance the Financing Decision, 601
20-3 Financing with a Portfolio of Currencies, 602
21: INTERNATIONAL CASH MANAGEMENT 611

21-1 Multinational Working Capital Management, 611
21-1a Subsidiary Expenses, 611
21-1b Subsidiary Revenue, 612
21-1c Subsidiary Dividend Payments, 612
21-1d Subsidiary Liquidity Management, 612
21-2 Centralized Cash Management, 613
21-2a Accommodating Cash Shortages, 614
21-3 Optimizing Cash Flows, 614
21-3a Accelerating Cash Inflows, 614
21-3b Minimizing Currency Conversion Costs, 615
21-3c Managing Blocked Funds, 617
21-3d Managing Intersubsidiary Cash Transfers, 617
21-3e Complications in Optimizing Cash Flow, 617
21-4 Investing Excess Cash, 618
21-4a Benefits of Investing in a Foreign Currency, 618
21-4b Risk of Investing in a Foreign Currency, 619
21-4c Hedging the Investment in a Foreign Currency, 620
21-4d Break-Even Point from Investing in a Foreign Currency, 621
21-4e Using a Probability Distribution to Enhance the Investment Decision, 622
21-4f Investing in a Portfolio of Currencies, 623
21-4g Dynamic Hedging, 625
Part 5 Integrative Problem: Short-Term Asset and Liability Management, 631
Final Self-Exam, 633
Appendix A: Answers to Self-Test Questions, 643

Appendix B: Supplemental Cases, 656
Appendix C: Using Excel to Conduct Analysis, 676
Appendix D: International Investing Project, 684
Appendix E: Discussion in the Boardroom, 687
Appendix F: Use of Bitcoin to Conduct International Transactions, 695
Glossary, 697
Index, 705
Preface
Businesses evolve into multinational corporations (MNCs) so that they can capitalize on
international opportunities. Their financial managers must be able to assess the interna-
tional environment, recognize opportunities, implement strategies, assess exposure to
risk, and manage that risk. The MNCs most capable of responding to changes in the in-
ternational financial environment will be rewarded. The same can be said for the stu-
dents today who may become the future managers of MNCs.
Intended Market
International Financial Management, 13th Edition, presumes an understanding of basic
corporate finance. It is suitable for both undergraduate and master’s level courses in in-
ternational financial management. For master’s courses, the more challenging questions,
problems, and cases in each chapter are recommended, along with special projects.
Organization of the Text

International Financial Management, 13th Edition, is organized to provide a background
on the international environment and then to focus on the managerial aspects from a
corporate perspective. Managers of MNCs will need to understand the environment be-
fore they can manage within it.
The first two parts of the text establish the necessary macroeconomic framework. Part 1
(Chapters 1 through 5) introduces the major markets that facilitate international business.
Part 2 (Chapters 6 through 8) describes relationships between exchange rates and eco-
nomic variables and explains the forces that influence these relationships.
The rest of the text develops a microeconomic framework with a focus on the manage-
rial aspects of international financial management. Part 3 (Chapters 9 through 12) explains
the measurement and management of exchange rate risk. Part 4 (Chapters 13 through 18)
describes the management of long-term assets and liabilities, including motives for direct
foreign investment, multinational capital budgeting, country risk analysis, and capital struc-
ture decisions. Part 5 (Chapters 19 through 21) concentrates on the MNC’s management of
short-term assets and liabilities, including trade financing, other short-term financing, and
international cash management.
Each chapter is self-contained so that professors can use classroom time to focus on
the more comprehensive topics while relying on the text to cover other concepts. The
management of long-term assets (Chapters 13 through 16 on direct foreign investment,
multinational capital budgeting, multinational restructuring, and country risk analysis) is
covered before the management of long-term liabilities (Chapters 17 and 18 on capital
structure and debt financing) because the financing decisions depend on the investment
decisions. Nevertheless, these concepts are explained with an emphasis on how the man-
agement of long-term assets and long-term liabilities is integrated. For example, multina-
tional capital budgeting analysis demonstrates how the feasibility of a foreign project
may depend on the financing mix. Some professors may prefer to teach the chapters on
managing long-term liabilities prior to teaching the chapters on managing long-term
assets.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xix
xx Preface
The strategic aspects, such as motives for direct foreign investment, are covered before
the operational aspects, such as short-term financing or investment. For professors who
prefer to cover the MNC’s management of short-term assets and liabilities before the
management of long-term assets and liabilities, the parts can be rearranged because
they are self-contained.
Professors may limit their coverage of chapters in some sections where they believe
the text concepts are covered by other courses or do not need additional attention be-
yond what is in the text. For example, they may give less attention to the chapters in
Part 2 (Chapters 6 through 8) if their students take a course in international economics.
If professors focus on the main principles, they may limit their coverage of Chapters 5,
15, 16, and 18. In addition, they may give less attention to Chapters 19 through 21 if
they believe that the text description does not require elaboration.
Approach of the Text

International Financial Management, 13th Edition, focuses on financial management de-
cisions that maximize the value of multinational corporations. The text offers a variety of
methods to reinforce key concepts so that instructors can select the methods and features
that best fit their teaching styles.
■ Part-Opening Diagram. A diagram is provided at the beginning of each part to
illustrate how the key concepts covered in that part are related.
■ Objectives. A bulleted list at the beginning of each chapter identifies the key concepts
in that chapter.
■ Examples. The key concepts are thoroughly described in the chapter and supported
by examples.
■ Web Links. Websites that offer useful related information regarding key concepts are
provided in each chapter.
■ Summary. A bulleted list at the end of each chapter summarizes the key concepts.
This list corresponds to the list of objectives at the beginning of the chapter.
■ Point/Counter-Point. A controversial issue is introduced, along with opposing
arguments, and students are asked to determine which argument is correct and to
explain why.
■ Self-Test Questions. A “Self-Test” at the end of each chapter challenges students on
the key concepts. The answers to these questions are provided in Appendix A.
■ Questions and Applications. A substantial set of questions and other applications at
the end of each chapter test the student’s knowledge of the key concepts in the
chapter.
■ Critical Thinking Question. At the end of each chapter, a critical thinking question
challenges the students to use their skills to write a short essay on a specific topic
that was given attention in the chapter.
■ Continuing Case. At the end of each chapter, the continuing case allows students
to use the key concepts to solve problems experienced by a firm called Blades, Inc.
(a producer of roller blades). By working on cases related to the same MNC over a
school term, students recognize how an MNC’s decisions are integrated.
■ Small Business Dilemma. The Small Business Dilemma at the end of each chapter
places students in a position where they must use concepts introduced in the
chapter to make decisions about a small MNC called Sports Exports Company.
■ Internet/Excel Exercises. At the end of each chapter are exercises that expose the
students to applicable information available at various websites, enable the applica-
tion of Excel to related topics, or provide a combination of these. Integrative
Preface xxi
Problem. An integrative problem at the end of each part integrates the key concepts
of chapters within that part.
■ Midterm and Final Examinations. A midterm self-exam is provided at the end of
Chapter 8, which focuses on international macro and market conditions (Chapters 1
through 8). A final self-exam is provided at the end of Chapter 21, which focuses on
the managerial chapters (Chapters 9 through 21). Students can compare their an-
swers to those in the answer key provided.
■ Supplemental Cases. Supplemental cases allow students to apply chapter concepts to
a specific situation of an MNC. All supplemental cases are located in Appendix B.
■ Running Your Own MNC. This project allows each student to create a small inter-
national business and apply key concepts from each chapter to run the business
throughout the school term. The project is available in the textbook companion site
(see the “Online Resources” section).
■ International Investing Project. This project (located in Appendix D) allows students
to simulate investing in stocks of MNCs and foreign companies and requires them
to assess how the values of these stocks change during the school term in response
to international economic conditions. The project is also available on the textbook
companion site (see the “Online Resources” section).
■ Discussion in the Boardroom. Located in Appendix E, this project allows students to
play the role of managers or board members of a small MNC that they created and
to make decisions about that firm. This project is also available on the textbook
companion site (see the “Online Resources” section).
■ The variety of end-of-chapter and end-of-part exercises and cases offer many
opportunities for students to engage in teamwork, decision making, and
communication.
Changes to this Edition

All chapters in the 13th edition have been updated to include recent developments in
international financial markets, and in the tools used to manage a multinational corpo-
ration. In particular, the following chapters were revised substantially:
■ Chapter 2 has been revised to reflect the balance-of-payments format that is consis-
tent with the recent format used by the U.S. government for reporting the specific
accounts.
■ Chapter 3 has been revised to improve flow between sections, and to update the
manipulation of exchange rates in the foreign exchange market.
■ Chapter 6 now includes a section on black markets for currencies, and a section on
the recent challenges of the European Central Bank (ECB) to stabilize financial
conditions in the eurozone.
■ Chapter 8 has been revised substantially to synthesize the relationships between the
Fisher effect, purchasing power parity (PPP), and the international Fisher effect (IFE).
■ Chapter 9 has been reorganized to improve the flow.
■ Chapter 10 has been revised to improve flow between sections, and to direct atten-
tion to the value at risk method for assessing exchange rate exposure.
■ Chapter 13 now includes a new case study example.
■ Chapter 14 now includes more detailed information about how managers (and stu-
dents) can use spreadsheets to facilitate the international capital budgeting process
and apply sensitivity analysis.
■ Chapter 18 has been revised to improve the flow between sections.
xxii Preface
Online Resources
The textbook companion site provides resources for both students and instructors.
Students: Access the following resources by going to www.cengagebrain.com and
searching ISBN 9781337099738: Running Your Own MNC, International Investing
Project, Discussion in the Boardroom, Key Terms Flashcards, and chapter Web links.
Instructors: Access textbook resources by going to www.cengage.com, logging in with
your faculty account username and password, and using ISBN 9781337099738 to search
for instructor resources or to add instructor resources to your account.
Instructor Supplements
The following supplements are available to instructors.
■ Instructor’s Manual. Revised by the author, the Instructor’s Manual contains the
chapter theme, topics to stimulate class discussion, and answers to end-of-chapter
Questions, Case Problems, Continuing Cases (Blades, Inc.), Small Business Dilem-
mas, Integrative Problems, and Supplemental Cases.
■ Test Bank. The expanded test bank, which has also been revised by the author,
contains a large set of questions in multiple choice or true/false format, including
content questions as well as problems.
■ ™
Cognero Test Bank. Cengage Learning Testing Powered by Cognero is a flexible
online system that allows you to: author, edit, and manage test bank content from
™
multiple Cengage Learning solutions; create multiple test versions in an instant; de-
liver tests from your LMS, your classroom, or wherever you want. The Cognero ™
Test Bank contains the same questions that are in the Microsoft Word Test Bank. ®
All question content is now tagged according to Tier I (Business Program Interdis-
ciplinary Learning Outcomes) and Tier II (Finance-specific) standards topic,
Bloom’s Taxonomy, and difficulty level.
■ PowerPoint Slides. The PowerPoint Slides provide a solid guide for organizing lectures. In
addition to the regular notes slides, a separate set of exhibit-only PPTs are also available.
Additional Course Tools

Cengage Learning Custom Solutions
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tions can help you create your perfect learning solution. Draw from Cengage Learning’s exten-
sive library of texts and collections, add your own original work, and/or create customized
media and technology to match your learning and course objectives. Our editorial team will
work with you through each step, allowing you to concentrate on the most important thing—
your students. Learn more about all our services at www.cengage.com/custom.
MindTap
Feel confident as you use the most engaging digital content available to transform today’s
students into critical thinkers. Personalize your course to match the way you teach and
your students learn. Improve outcomes with real-time insight into student progress, and
save time. All while your students engage with your course content, enjoy the flexibility
of studying anytime and anywhere, stay connected with the MindTap Mobile app, and
earn better grades.
MindTap Instant Access Code ISBN: 9781337270021.
Preface xxiii
Acknowledgments
Several professors reviewed previous versions of this text and influenced its content and
organization. They are acknowledged below in alphabetical order.
Tom Adamson, Midland University Thomas J. Kopp, Siena College
Raj Aggarwal, University of Akron Suresh Krishnan, Pennsylvania State
Richard Ajayi, University of Central University
Florida Merouane Lakehal-Ayat, St. John Fisher
Alan Alford, Northeastern University College
Yasser Alhenawi, University of Evansville Duong Le, University of Arkansas – Little
H. David Arnold, Auburn University Rock
Robert Aubey, University of Wisconsin Boyden E. Lee, New Mexico State
Bruce D. Bagamery, Central Washington University
University Jeong W. Lee, University of North Dakota
James C. Baker, Kent State University Michael Justin Lee, University of Maryland
Gurudutt Baliga, University of Delaware Sukhun Lee, Loyola University Chicago
Laurence J. Belcher, Stetson University Richard Lindgren, Graceland University
Richard Benedetto, Merrimack College Charmen Loh, Rider University
Bharat B. Bhalla, Fairfield University Carl Luft, DePaul University
Rahul Bishnoi, Hofstra University Ed Luzine, Union Graduate College
P. R. Chandy, University of North Texas K. Christopher Ma, KCM Investment Co.
Prakash L. Dheeriya, California State Davinder K. Malhotra, Philadelphia
University – Dominguez Hills University
Benjamin Dow, Southeast Missouri State Richard D. Marcus, University of
University Wisconsin – Milwaukee
Margaret M. Forster, University of Notre Anna D. Martin, St. Johns University
Dame Leslie Mathis, University of Memphis
Lorraine Gilbertson, Webster University Ike Mathur, Southern Illinois University
Charmaine Glegg, East Carolina University Wendell McCulloch Jr., California State
Anthony Yanxiang Gu, SUNY – Geneseo University – Long Beach
Anthony F. Herbst, Suffolk University Carl McGowan, University of Michigan –
Chris Hughen, University of Denver Flint
Abu Jalal, Suffolk University Fraser McHaffie, Marietta College
Steve A. Johnson, University of Texas – Edward T. Merkel, Troy University
El Paso Stuart Michelson, Stetson University
Manuel L. Jose, University of Akron Scott Miller, Pepperdine University
Dr. Joan C. Junkus, DePaul University Jose Francisco Moreno, University of the
Rauv Kalra, Morehead State University Incarnate Word
Ho-Sang Kang, University of Texas – Penelope E. Nall, Gardner-Webb
Dallas University
Mohamamd A. Karim, University of Texas Duc Anh Ngo, University of Texas – El Paso
– El Paso Srinivas Nippani, Texas A&M University
Frederick J. Kelly, Seton Hall University Andy Noll, St. Catherine University
Robert Kemp, University of Virginia Vivian Okere, Providence College
Coleman S. Kendall, University of Illinois Edward Omberg, San Diego State
– Chicago University
Dara Khambata, American University Prasad Padmanabhan, San Diego State
Chong-Uk Kim, Sonoma State University University
Doseong Kim, University of Akron Ali M. Parhizgari, Florida International
Elinda F. Kiss, University of Maryland University
xxiv Preface
Anne Perry, American University Ahmad Sohrabian, California State Poly-

Rose M. Prasad, Central Michigan technic University – Pomona
University Carolyn Spencer, Dowling College
Larry Prather, East Tennessee State Angelo Tarallo, Ramapo College
University Amir Tavakkol, Kansas State University
Abe Qastin, Lakeland College G. Rodney Thompson, Virginia Tech
Frances A. Quinn, Merrimack College Stephen G. Timme, Georgia State
Mitchell Ratner, Rider University University
David Rayome, Northern Michigan Daniel L. Tompkins, Niagara University
University Niranjan Tripathy, University of North
S. Ghon Rhee, University of Rhode Island Texas
William J. Rieber, Butler University Eric Tsai, Temple University
Mohammad Robbani, Alabama A&M Joe Chieh-chung Ueng, University of
University St. Thomas
Ashok Robin, Rochester Institute of Mo Vaziri, California State University
Technology Mahmoud S. Wahab, University of
Alicia Rodriguez de Rubio, University of Hartford
the Incarnate Word Ralph C. Walter III, Northeastern Illinois
Tom Rosengarth, Westminster College University
Atul K. Saxena, Georgia Gwinnett College Hong Wan, SUNY – Oswego
Kevin Scanlon, University of Notre Dame Elizabeth Webbink, Rutgers University
Michael Scarlatos, CUNY – Brooklyn Ann Marie Whyte, University of Central
College Florida
Jeff Schultz, Christian Brothers University Marilyn Wiley, University of North Texas
Jacobus T. Severiens, Kent State University Rohan Williamson, Georgetown
Vivek Sharma, University of Michigan – University
Dearborn Larry Wolken, Texas A&M University
Peter Sharp, California State University – Glenda Wong, De Paul University
Sacramento Shengxiong Wu, Indiana University –
Dilip K. Shome, Virginia Tech University South
Joseph Singer, University of Missouri – J. Jimmy Yang, Oregon State University
Kansas City Bend Mike Yarmuth, Sullivan University
Naim Sipra, University of Colorado – Denver Yeomin Yoon, Seton Hall University
Jacky So, Southern Illinois University – David Zalewski, Providence College
Edwardsville Emilio Zarruk, Florida Atlantic University
Luc Soenen, California Polytechnic State Stephen Zera, California State University –
University – San Luis Obispo San Marcos
In addition, many friends and colleagues offered useful suggestions that influenced
the content and organization of this edition, including Kevin Brady (Florida Atlantic
University), Kien Cao (Foreign Trade University), Inga Chira (California State
University, Northridge), Jeff Coy (Penn State – Erie), Sean Davis (University of
North Florida), Luis Garcia-Feijoo (Florida Atlantic University), Dan Hartnett,
Victor Kalafa, Sukhun Lee (Loyola University Chicago), Pat Lewis,Marek Marciniak
(West Chester University), Thanh Ngo (East Carolina University), Arjan Premti
(University of Wisconsin – Whitewater), Nivine Richie (University of North Carolina –
Wilmington), Garrett Smith (University of Wisconsin – Whitewater), Jurica Susnjara (Kean
University), Alex Tang (Morgan State University), and Nik Volkov (Mercer University).
I also benefited from the input of many business owners and managers I have met
outside the United States who have been willing to share their insight about international
financial management.
Preface xxv
I appreciate the help and support from the people at Cengage Learning, including
Joe Sabatino (Sr. Team Product Manager), Mike Reynolds (Retired), Nate Anderson
(Marketing Manager), Brad Sullender and Stacey Lutkoski (Content Developers) and
Denisse A Zavala-Rosales (Product Assistant). Special thanks are due to Nadia Saloom
(Content Project Manager) and Nancy Ahr (Copyeditor) for their efforts to ensure a
quality final product.
Jeff Madura
Florida Atlantic University
About the Author
Dr. Jeff Madura is presently Emeritus Professor of Finance at Florida Atlantic University.
He has written several successful finance texts, including Financial Markets and
Institutions (in its 12th edition). His research on international finance has been pub-
lished in numerous journals, including Journal of Financial and Quantitative Analysis;
Journal of Banking and Finance; Journal of Money, Credit and Banking; Journal of
International Money and Finance; Financial Management; Journal of Financial Research;
Financial Review; Journal of International Financial Markets, Institutions, and Money;
Global Finance Journal; International Review of Financial Analysis; and Journal of
Multinational Financial Management. Dr. Madura has received multiple awards for
excellence in teaching and research, and he has served as a consultant for international
banks, securities firms, and other multinational corporations. He served as a director
for the Southern Finance Association and the Eastern Finance Association, and he is also
former president of the Southern Finance Association.
xxvi Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
PART 1
The International Financial
Environment
Part 1 (Chapters 1 through 5) provides an overview of the multinational corporation

(MNC) and the environment in which it operates. Chapter 1 explains the goals of the
MNC, along with the motives and risks of international business. Chapter 2 describes
the international flow of funds between countries. Chapter 3 describes the interna-
tional financial markets and how these markets facilitate ongoing operations.
Chapter 4 explains how exchange rates are determined, and Chapter 5 provides back-
ground on the currency futures and options markets. Managers of MNCs must
understand the international environment described in these chapters in order to
make proper decisions.
Multinational
Corporation (MNC)
Foreign Exchange Markets
Dividend
Remittance
and
Financing
Exporting and Importing Investing and Financing
International
Product Markets Subsidiaries Financial Markets
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 1
1
Multinational Financial
Management: An Overview
CHAPTER Multinational corporations (MNCs) are defined as firms that engage in

OBJECTIVES some form of international business. Their managers conduct international
The specific objectives financial management, which involves international investing and financing
of this chapter are to: decisions that are intended to maximize the value of the MNC. The goal of
■ identify the these managers is to maximize their firm’s value, which is the same goal
management goal
pursued by managers employed by strictly domestic companies.
and organizational
structure of the MNC, Initially, firms may merely attempt to export products to a certain country
■ describe the key
or import supplies from a foreign manufacturer. Over time, however, many
theories about why of these firms recognize additional foreign opportunities and eventually
MNCs engage in establish subsidiaries in foreign countries. Dow Chemical, IBM, Nike, and
international
business, many other firms have more than half of their assets in foreign countries.
Some businesses, such as ExxonMobil, Fortune Brands, and Colgate-
■ explain the common
methods used to Palmolive, commonly generate more than half of their sales in foreign
conduct countries. It is typical also for smaller U.S. firms to generate more than 20
international
business, and percent of their sales in foreign markets; examples include Ferro (Ohio) and
Medtronic (Minnesota). Many technology firms, such as Apple, Facebook,
■ provide a model for
valuing the MNC. and Twitter, expand overseas in order to capitalize on their technology
advantages. Many smaller private U.S. firms such as Republic of Tea
(California) and Magic Seasoning Blends (Louisiana) generate a substantial
percentage of their sales in foreign markets. Seventy-five percent of U.S.
firms that export have fewer than 100 employees.
International financial management is important even to companies that
have no international business. The reason is that these companies must
recognize how their foreign competitors will be influenced by movements
in exchange rates, foreign interest rates, labor costs, and inflation. Such
economic characteristics can affect the foreign competitors’ costs of
production and pricing policies.
This chapter provides background on the goals, motives, and valuation of
a multinational corporation.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 3
4 Part 1: The International Financial Environment
1-1 Managing the MNC

The commonly accepted goal of an MNC is to maximize shareholder wealth. Managers
employed by the MNC are expected to make decisions that will maximize the stock price
and thereby serve the shareholders’ interests. Some publicly traded MNCs based outside
the United States may have additional goals, such as satisfying their respective govern-
ments, creditors, or employees. However, these MNCs now place greater emphasis on
satisfying shareholders; that way, the firm can more easily obtain funds from them to
support its operations. Even in developing countries (e.g., Bulgaria and Vietnam) that
have just recently encouraged the development of business enterprise, managers of
firms must serve shareholder interests in order to secure their funding. There would be
little demand for the stock of a firm that announced the proceeds would be used to over-
pay managers or invest in unprofitable projects.
The focus of this text is on MNCs whose parents wholly own any foreign subsidiaries,
which means that the U.S. parent is the sole owner of the subsidiaries. This is the most
common form of ownership of U.S.-based MNCs, and it gives financial managers
throughout the firm the single goal of maximizing the entire MNC’s value (rather than
the value of any particular subsidiary). The concepts in this text apply generally also to
MNCs based in countries other than the United States.
1-1a How Business Disciplines Are Used to Manage the MNC

Various business disciplines are integrated to manage the MNC in a manner that max-
imizes shareholder wealth. Management is used to develop strategies that will motivate
and guide employees who work in an MNC and to organize resources so that they can
efficiently produce products or services. Marketing is used to increase consumer aware-
ness about the products and to monitor changes in consumer preferences. Accounting
and information systems are used to record financial information about revenue and
expenses of the MNC, which can be used to report financial information to investors
and to evaluate the outcomes of various strategies implemented by the MNC. Finance
is used to make investment and financing decisions for the MNC. Common finance
decisions include:
■ whether to discontinue operations in a particular country,
■ whether to pursue new business in a particular country,
■ whether to expand business in a particular country, and
■ how to finance expansion in a particular country.
These finance decisions for each MNC are partially influenced by the other business
discipline functions. The decision to pursue new business in a particular country is based
on comparing the costs and potential benefits of expansion. The potential benefits of
such new business depend on expected consumer interest in the products to be sold
(marketing function) and expected cost of the resources needed to pursue the new busi-
ness (management function). Financial managers rely on financial data provided by the
accounting and information systems functions.
1-1b Agency Problems

Managers of an MNC may make decisions that conflict with the firm’s goal of maximiz-
ing shareholder wealth. For example, a decision to establish a subsidiary in one location
versus another may be based on the location’s appeal to a particular manager rather than
on its potential benefits to shareholders. A decision to expand a subsidiary may be
Chapter 1: Multinational Financial Management: An Overview 5
motivated by a manager’s desire to receive more compensation rather than to enhance

the value of the MNC. This conflict of goals between a firm’s managers and shareholders
is often referred to as the agency problem.
The costs of ensuring that managers maximize shareholder wealth (referred to as
agency costs) are normally larger for MNCs than for purely domestic firms for several
reasons. First, MNCs with subsidiaries scattered around the world may experience larger
agency problems because monitoring the managers of distant subsidiaries in foreign
countries is more difficult. Second, foreign subsidiary managers who are raised in differ-
ent cultures may not follow uniform goals. Some of them may believe that the first pri-
ority should be to serve their respective employees. Third, the sheer size of the larger
MNCs can also create significant agency problems, because it complicates the monitoring
of managers.
EXAMPLE Two years ago, Seattle Co. (based in the United States) established a subsidiary in Singapore so that it
could expand its business there. It hired a manager in Singapore to manage the subsidiary. During the
last two years, sales generated by the subsidiary have not grown. Even so, the manager hired several
employees to do the work that he was assigned to do. The managers of the parent company in the
United States have not closely monitored the subsidiary because it is so far away and because they
trusted the manager there. Now they realize that there is an agency problem. The subsidiary is experienc-
ing losses every quarter, so its management must be more closely monitored. l
Lack of monitoring can lead to substantial losses for MNCs. The large New
York–based bank JPMorgan Chase & Co. lost at least $6.2 billion and had to pay
more than $1 billion in fines and penalties after a trader in its office in London,
England, made extremely risky trades. The subsequent investigation revealed that
the bank had maintained poor internal control and failed to provide proper oversight
of its employees.
Parent Control of Agency Problems The parent corporation of an MNC may

be able to prevent most agency problems with proper governance. The parent should
clearly communicate the goals for each subsidiary to ensure that all of them focus on
maximizing the value of the MNC and not of their respective subsidiaries. The parent
can oversee subsidiary decisions to check whether each subsidiary’s managers are satisfy-
ing the MNC’s goals. The parent also can implement compensation plans that reward
those managers who satisfy the MNC’s goals. A common incentive is to provide man-
agers with the MNC’s stock (or options to buy that stock at a fixed price) as part of
their compensation; thus the subsidiary managers benefit directly from a higher stock
price when they make decisions that enhance the MNC’s value.
EXAMPLE When Seattle Co. (from the previous example) recognized the agency problems with its Singapore subsid-
iary, it created incentives for the manager of the subsidiary that aligned with the parent’s goal of maxi-
mizing shareholder wealth. Specifically, it set up a compensation system whereby the manager’s annual
bonus is based on the subsidiary’s earnings. l
Corporate Control of Agency Problems In some cases, agency problems can

occur because the goals of the entire management of the MNC are not focused on maxi-
mizing shareholder wealth. Various forms of corporate control can help prevent these
agency problems and thus induce managers to make decisions that satisfy the MNC’s
shareholders. If these managers make poor decisions that reduce the MNC’s value, then
another firm might acquire it at the lower price and hence would probably remove the
weak managers. Moreover, institutional investors (e.g., mutual and pension funds) with
large holdings of an MNC’s stock have some influence over management because they
will complain to the board of directors if managers are making poor decisions.
Institutional investors may seek to enact changes, including removal of high-level man-
agers or even board members, in a poorly performing MNC. Such investors may also
band together to demand changes in an MNC, as they know that the firm would not
want to lose all of its major shareholders.
How SOX Improved Corporate Governance of MNCs One limitation of the

corporate control process is that investors rely on reports by the firm’s own managers for
information. If managers are serving themselves rather than the investors, they may
exaggerate their performance. There are many well-known examples (such as Enron
and WorldCom) in which large MNCs were able to alter their financial reporting and
hide problems from investors.
Enacted in 2002, the Sarbanes-Oxley Act (SOX) ensures a more transparent process
for managers to report on the productivity and financial condition of their firm. It
requires firms to implement an internal reporting process that can be easily monitored
by executives and the board of directors. Some of the common methods used by MNCs
to improve their internal control process are:
■ establishing a centralized database of information,
■ ensuring that all data are reported consistently among subsidiaries,
■ implementing a system that automatically checks data for unusual discrepancies
relative to norms,
■ speeding the process by which all departments and subsidiaries access needed data,
and
■ making executives more accountable for financial statements by personally verifying
their accuracy.
These systems make it easier for a firm’s board members to monitor the financial
reporting process. In this way, SOX reduced the likelihood that managers of a firm can
manipulate the reporting process and therefore improved the accuracy of financial infor-
mation for existing and prospective investors.
1-1c Management Structure of an MNC

The magnitude of agency costs can vary with the MNC’s management style. A central-
ized management style, as illustrated in the top section of Exhibit 1.1, can reduce agency
costs because it allows managers of the parent to control foreign subsidiaries and thus
reduces the power of subsidiary managers. However, the parent’s managers may make
poor decisions for the subsidiary if they are less informed than the subsidiary’s managers
about its setting and financial characteristics.
Alternatively, an MNC can use a decentralized management style, as illustrated in the
bottom section of Exhibit 1.1. This style is more likely to result in higher agency costs
because subsidiary managers may make decisions that fail to maximize the value of the
entire MNC. Yet this management style gives more control to those managers who are
closer to the subsidiary’s operations and environment. To the extent that subsidiary
managers recognize the goal of maximizing the value of the overall MNC and are com-
pensated in accordance with that goal, the decentralized management style may be more
effective.
Given the clear trade-offs between centralized and decentralized management styles,
some MNCs attempt to achieve the advantages of both. That is, they allow subsidiary
managers to make the key decisions about their respective operations while the par-
ent’s management monitors those decisions to ensure they are in the MNC’s best
interests.
Exhibit 1.1 Management Styles of MNCs
Centralized Multinational
Financial Management
Cash Management Financial Managers Cash Management

at Subsidiary A of Parent at Subsidiary B
Inventory and Inventory and

Accounts Receivable Accounts Receivable
Management at Management at
Subsidiary A Subsidiary B
Capital Capital
Financing at Financing at
Expenditures Expenditures
at Subsidiary A at Subsidiary B
Decentralized Multinational
Financial Management
Cash Management Financial Managers Financial Managers Cash Management

at Subsidiary A of Subsidiary A of Subsidiary B at Subsidiary B
Inventory and Inventory and

Accounts Receivable Accounts Receivable
Management at Management at
Capital Capital
Financing at Financing at
Expenditures Expenditures
at Subsidiary A at Subsidiary B
How the Internet Facilitates Management Control The Internet simplifies the
process for the parent to monitor the actions and performance of its foreign subsidiaries.
EXAMPLE Recall the example of Seattle Co., which has a subsidiary in Singapore. Using the Internet, the foreign sub-
sidiary can e-mail updated information in a standardized format that reduces language problems and also
send images of financial reports and product designs. The parent can then easily track the inventory,
sales, expenses, and earnings of each subsidiary on a weekly or monthly basis. Thus using the Internet
can reduce agency costs due to international aspects of an MNC’s business. l
1-2 Why MNCs Pursue International Business

Multinational business has generally increased over time. Three commonly held theories
to explain why MNCs are motivated to expand their business internationally are the
(1) theory of comparative advantage, (2) imperfect markets theory, and (3) product
cycle theory. These theories overlap to some extent and can complement each other in
developing a rationale for the evolution of international business.
1-2a Theory of Comparative Advantage

Specialization by countries can increase production efficiency. Some countries, such as
Japan and the United States, have a technology advantage, whereas others, such as
China and Malaysia, have an advantage in the cost of basic labor. Because these advan-
tages cannot easily be transported, countries tend to use their advantages to specialize in
the production of goods that can be produced with relative efficiency. This explains why
countries such as Japan and the United States are large producers of electronic products
while countries such as Jamaica and Mexico are large producers of agricultural and
handmade goods. Multinational corporations such as Oracle, Intel, and IBM have
grown substantially in foreign countries because of their technology advantage.
A country that specializes in some products may not produce other products, so trade
between countries is essential. This is the argument made by the classical theory of com-
parative advantage. Comparative advantages allow firms to penetrate foreign markets.
Many of the Virgin Islands, for example, specialize in tourism and rely completely on
international trade for most products. Although these islands could produce some
goods, it is more efficient for them to specialize in tourism. That is, the islands are better
off using some revenues earned from tourism to import products than attempting to
produce all the products they need.
1-2b Imperfect Markets Theory

If each country’s markets were closed to all other countries, then there would be no interna-
tional business. At the other extreme, if markets were perfect and thus the factors of production
(such as labor) easily transferable, then labor and other resources would flow wherever they
were in demand. Such unrestricted mobility of factors would create equality in both costs and
returns and thus would remove the comparative cost advantage, which is the rationale for
international trade and investment. However, the real world suffers from imperfect market
conditions where factors of production are somewhat immobile. There are costs and often
restrictions related to the transfer of labor and other resources used for production. There also
may be restrictions on transferring funds and other resources among countries. Because mar-
kets for the various resources used in production are “imperfect,” MNCs such as the Gap and
Nike often capitalize on a foreign country’s particular resources. Imperfect markets provide an
incentive for firms to seek out foreign opportunities.
1-2c Product Cycle Theory

One of the more popular explanations as to why firms evolve into MNCs is the product
cycle theory. According to this theory, firms become established in the home market as a
result of some perceived advantage over existing competitors, such as a need by the mar-
ket for at least one more supplier of the product. Because information about markets and
competition is more readily available at home, a firm is likely to establish itself first in its
home country. Foreign demand for the firm’s product will initially be accommodated by
exporting. As time passes, the firm may feel the only way to retain its advantage over
competition in foreign countries is to produce the product in foreign markets, thereby
reducing its transportation costs. The competition in those foreign markets may increase
as other producers become more familiar with the firm’s product. The firm may develop
strategies to prolong the foreign demand for its product. One frequently used approach
is to differentiate the product so that competitors cannot duplicate it exactly. These
phases of the product cycle are illustrated in Exhibit 1.2. For instance, 3M Co. uses one
new product to enter a foreign market, after which it expands the product line there.
There is, of course, more to the product cycle theory than summarized here. This dis-
cussion merely suggests that, as a firm matures, it may recognize additional opportunities
outside its home country. Whether the firm’s foreign business diminishes or expands
over time will depend on how successful it is at maintaining some advantage over its
competition. That advantage could be an edge in its production or financing approach
that reduces costs or an edge in its marketing approach that generates and maintains a
strong demand for its product.
Exhibit 1.2 International Product Life Cycle
1 2
Firm creates product to Firm exports product to
accommodate local accommodate foreign
demand. demand.
4a
Firm differentiates product
from competitors and/or
expands product line in
foreign country. 3
Firm establishes foreign
or subsidiary to establish
presence in foreign
country and possibly
4b to reduce costs.
Firm’s foreign business
declines as its competitive
advantages are eliminated.
1-3 Methods to Conduct

International Business
Firms use several methods to conduct international business. The most common meth-
ods are:
■ international trade,
■ licensing,
■ franchising,
■ joint ventures,
■ acquisitions of existing operations, and
■ establishment of new foreign subsidiaries.
Each method will be discussed in turn, with particular attention paid to the respective
risk and return characteristics.
1-3a International Trade

WEB International trade is a relatively conservative approach that can be used by firms to pen-
www.trade.gov/mas/ian etrate markets (by exporting) or to obtain supplies at a low cost (by importing). This
Outlook of international approach entails minimal risk because the firm does not place any of its capital at risk.
trade conditions for each If the firm experiences a decline in its exporting or importing, it can normally reduce or
of several industries. discontinue that part of its business at a low cost.
Many large U.S.-based MNCs, including Boeing, DuPont, General Electric, and IBM,
generate more than $4 billion in annual sales from exporting. Nonetheless, small busi-
nesses account for more than 20 percent of the value of all U.S. exports.
How the Internet Facilitates International Trade Many firms use their
websites to list the products they sell along with the price for each product. This makes
it easy for them to advertise their products to potential importers anywhere in the world
without mailing brochures to various countries. Furthermore, a firm can add to its prod-
uct line or change prices simply by revising its website. Thus importers need only check
an exporter’s website periodically in order to keep abreast of its product information.
Firms also can use their websites to accept orders online. Some products, such as soft-
ware, can be downloaded directly by the importer via the Internet. Other products must
be shipped, but even in that case the Internet makes it easier to track the shipping pro-
cess. An importer can transmit its order for products via e-mail to the exporter, and
when the warehouse ships the products it can send an e-mail message to the importer
and to the exporter’s headquarters. The warehouse may also use technology to monitor
its inventory of products so that suppliers are automatically notified to send more sup-
plies once the inventory falls below a specified level. If the exporter has multiple ware-
houses, the Internet allows them to operate as a network; hence if one warehouse cannot
fill an order, another warehouse will.
1-3b Licensing
Licensing is an arrangement whereby one firm provides its technology (copyrights,
patents, trademarks, or trade names) in exchange for fees or other considerations.
Many producers of software allow foreign companies to use their software for a fee. In
this way, they can generate revenue from foreign countries without establishing any pro-
duction plants in foreign countries, or transporting goods to foreign countries.
1-3c Franchising
Under a franchising arrangement, one firm provides a specialized sales or service strat-
egy, support assistance, and possibly an initial investment in the franchise in exchange
for periodic fees, allowing local residents to own and manage the units. For example,
McDonald’s, Pizza Hut, Subway, and Dairy Queen have franchises that are owned and
managed by local residents in many foreign countries. As an example, McDonald’s typi-
cally purchases the land and establishes the building. It then leases the building to a fran-
chisee and allows the franchisee to operate the business in the building for a specified
number of years (such as 20 years), but the franchisee must follow standards set by
McDonald’s when operating the business. Because franchising by an MNC often
requires a direct investment in foreign operations, this is referred to as a direct foreign
investment (DFI).
1-3d Joint Ventures

A joint venture is a venture that is jointly owned and operated by two or more firms.
Many firms enter foreign markets by engaging in a joint venture with firms that already
reside in those markets. Most joint ventures allow two firms to apply their respective
comparative advantages in a given project. Joint ventures often require some degree
of DFI, while the other parties involved in the joint ventures also participate in the
investment.
For instance, General Mills, Inc., joined in a venture with Nestlé SA so that the cereals
produced by General Mills could be sold through the overseas sales distribution network
established by Nestlé. Xerox Corp. and Fuji Co. (of Japan) engaged in a joint venture
that allowed Xerox to penetrate the Japanese market while allowing Fuji to enter the
photocopying business. Kellogg Co. and Wilmar International Ltd. have established a
joint venture to manufacture and distribute cereals and snack products in China. Wilmar
already has a wholly owned subsidiary in China, and it is participating in the venture.
Joint ventures between automobile manufacturers are numerous because each manufac-
turer can offer its own technological advantages. General Motors has ongoing joint ven-
tures with automobile manufacturers in several different countries, including the former
Soviet states.
1-3e Acquisitions of Existing Operations

Firms frequently acquire other firms in foreign countries as a means of penetrating for-
eign markets. Such acquisitions give firms full control over their foreign businesses and
enable the MNC to quickly obtain a large portion of foreign market share. Acquisitions
represent direct foreign investment because MNCs directly invest in a foreign country by
purchasing the operations of target companies.
EXAMPLE Google, Inc., has made major international acquisitions to expand its business and improve its technology.
It has acquired businesses in Australia (search engines), Brazil (search engines), Canada (mobile browser),
China (search engines), Finland (micro-blogging), Germany (mobile software), Russia (online advertising),
South Korea (weblog software), Spain (photo sharing), and Sweden (videoconferencing). l
However, the acquisition of an existing corporation could lead to large losses because
of the large investment required. In addition, if the foreign operations perform poorly
then it may be difficult to sell the operations at a reasonable price.
Some firms engage in partial international acquisitions in order to obtain a toehold or
stake in foreign operations. This approach requires a smaller investment than that of a
full international acquisition and so exposes the firm to less risk. On the other hand, the
firm will not have complete control over foreign operations that are only partially
acquired.
1-3f Establishment of New Foreign Subsidiaries

Firms can also penetrate foreign markets by establishing new operations in foreign coun-
tries to produce and sell their products. Like a foreign acquisition, this method requires a
large direct foreign investment. Establishing new subsidiaries may be preferred to foreign
acquisitions because the operations can be tailored exactly to the firm’s needs. In addi-
tion, a smaller investment may be required than would be needed to purchase existing
operations. However, the firm will not reap any rewards from the investment until the
subsidiary is built and a customer base established.
1-3g Summary of Methods

The methods of increasing international business extend from the relatively simple
approach of international trade to the more complex approach of acquiring foreign
firms or establishing new subsidiaries. International trade and licensing are usually not
viewed as examples of DFI because they do not involve direct investment in foreign
operations. Franchising and joint ventures tend to require some investment in foreign
operations but only to a limited degree. Foreign acquisitions and the establishment of
new foreign subsidiaries require substantial investment in foreign operations and account
for the largest portion of DFI.
Many MNCs use a combination of methods to increase international business. For
example, IBM and PepsiCo engage in substantial direct foreign investment yet also
derive some of their foreign revenue from various licensing agreements, which require
less DFI to generate revenue.
EXAMPLE The evolution of Nike began in 1962 when Phil Knight, a student at Stanford’s business school, wrote a
paper on how a U.S. firm could use Japanese technology to break the German dominance of the athletic
shoe industry in the United States. After graduation, Knight visited the Unitsuka Tiger shoe company in
Japan. He made a licensing agreement with that company to produce a shoe that he sold in the United
States under the name Blue Ribbon Sports (BRS). In 1972, Knight exported his shoes to Canada. In 1974,
he expanded his operations into Australia. In 1977, the firm licensed factories in Taiwan and Korea to pro-
duce athletic shoes and then sold the shoes in Asian countries. In 1978, BRS became Nike, Inc., and began
to export shoes to Europe and South America. As a result of its exporting and its direct foreign invest-
ment, Nike’s international sales reached $1 billion by 1992 and now exceed $8 billion per year. l
The effects of international business on an MNC’s cash flows are illustrated in Exhibit 1.3.
In general, the cash outflows associated with international business by the U.S. parent are
used to pay for imports, to comply with its international arrangements, and/or to support
the creation or expansion of foreign subsidiaries. At the same time, an MNC receives cash
flows in the form of payment for its exports, fees for the services it provides within inter-
national arrangements, and remitted funds from the foreign subsidiaries. The first diagram
in this exhibit illustrates the case of an MNC that engages in international trade; its inter-
national cash flows therefore result either from paying for imported supplies or from
receiving payment in exchange for products that it exports.
The second diagram illustrates an MNC that engages in some international arrange-
ments (which could include international licensing, franchising, or joint ventures). Any
such arrangement may require cash outflows of the MNC in foreign countries to cover,
for example, the expenses associated with transferring technology or funding partial
Exhibit 1.3 Cash Flow Diagrams for MNCs
International Trade by the MNC
Cash Inflows from Exporting

Foreign Importers
MNC
Cash Outflows to Pay for Importing
Foreign Exporters
Licensing, Franchising, Joint Ventures by the MNC
Cash Inflows from Services Provided

Foreign Firms or
MNC Government
Cash Outflows for Services Received
Agencies
Investment in Foreign Subsidiaries by the MNC
Cash Inflows from Remitted Earnings

Foreign
MNC
Cash Outflows to Finance the Operations Subsidiaries
investment in a franchise or joint venture. These arrangements generate cash flows for
the MNC in the form of fees for services (e.g., technology, support assistance) that it
provides.
The third diagram in Exhibit 1.3 illustrates the case of an MNC that engages in direct
foreign investment. This type of MNC has one or more foreign subsidiaries. There can
be cash outflows from the U.S. parent to its foreign subsidiaries in the form of invested
funds to help finance the operations of the foreign subsidiaries. There are also cash flows
from the foreign subsidiaries to the U.S. parent in the form of remitted earnings and fees
for services provided by the parent; all of these flows can be classified as remitted funds
from the foreign subsidiaries.
1-4 Valuation Model for an MNC

The value of an MNC is relevant to its shareholders and its debt holders. When man-
agers make decisions that maximize the firm’s value, they also maximize shareholder
wealth (assuming that the decisions are not intended to maximize the wealth of debt
holders at the expense of shareholders). Given that international financial management
should be conducted with the goal of increasing the MNC’s value, it is useful to review
some basics of valuation. There are numerous methods of valuing an MNC, some of
which lead to the same valuation. The method described in this section reflects the key
factors affecting an MNC’s value in a general sense.
1-4a Domestic Model

Before modeling an MNC’s value, consider the valuation of a purely domestic firm in the
United States that does not engage in any foreign transactions. The value (V) of the
purely domestic firm is commonly specified as the present value of its expected dollar
cash flows:
( )
X
n
E ðCF$,t Þ
V ¼
t ¼1 ð1 þ kÞt
Here E(CF$,t) denotes expected cash flows to be received at the end of period t; n is
the number of future periods in which cash flows are received; and k represents not only
the weighted average cost of capital but also the required rate of return by investors and
creditors who provide funds to the MNC.
Dollar Cash Flows The dollar cash flows in period t represent funds received by
the firm minus funds needed to pay expenses or taxes or to reinvest in the firm (such as
an investment to replace old computers or machinery). The expected cash flows are esti-
mated from knowledge about various existing projects as well as other projects that will
be implemented in the future. A firm’s decisions about how it should invest funds to
expand its business can affect its expected future cash flows and therefore can affect the
firm’s value. Holding other factors constant, an increase in expected cash flows over time
should increase the value of a firm.
Cost of Capital The required rate of return (k) in the denominator of the valuation
equation represents the cost of capital (including both the cost of debt and the cost of
equity) to the firm and is, in essence, a weighted average of the cost of capital based on
all of the firm’s projects. In making decisions that affect its cost of debt or equity for one
or more projects, the firm also affects the weighted average of its cost of capital and thus
the required rate of return. If the firm’s credit rating is suddenly lowered, for example,
then its cost of capital will probably increase and so will its required rate of return. Hold-
ing other factors constant, an increase in the firm’s required rate of return will reduce
the value of the firm because expected cash flows must be discounted at a higher interest
rate. Conversely, a decrease in the firm’s required rate of return will increase the value of
the firm because expected cash flows are discounted at a lower required rate of return.
1-4b Multinational Model

An MNC’s value can be specified in the same manner as a purely domestic firm’s value.
However, consider that the expected cash flows generated by a U.S.-based MNC’s parent
in period t may be coming from various countries and may be denominated in different
foreign currencies.
The foreign currency cash flows will be converted into dollars. Thus the expected dol-
lar cash flows to be received at the end of period t are equal to the sum of the products
of cash flows denominated in each currency j multiplied by the expected exchange rate at
which currency j could be converted into dollar cash flows by the MNC at the end of
period t:
X
m
E ðCF$,t Þ ¼ ½E ðCFj ,t Þ E ðSj ,t Þ
j¼1
Here CFj,t represents the amount of cash flow denominated in a particular foreign
currency j at the end of period t, and Sj,t denotes the exchange rate at which the foreign
currency (measured in dollars per unit of the foreign currency) can be converted to dol-
lars at the end of period t.
Valuation of an MNC That Uses Two Currencies An MNC that does busi-
ness in two currencies could measure its expected dollar cash flows in any period by
multiplying the expected cash flow in each currency by the expected exchange rate at
which that currency could be converted to dollars and then summing those two
products.
It may help to think of an MNC as a portfolio of currency cash flows, one for each
currency in which it conducts business. The expected dollar cash flows derived from
each of those currencies can be combined to determine the total expected dollar cash
flows in the given period. It is easier to derive an expected dollar cash flow value for
each currency before combining the cash flows among currencies within a given period,
because each currency’s cash flow amount must be converted to a common unit (the
dollar) before combining the amounts.
EXAMPLE Carolina Co. has expected cash flows of $100,000 from local business and 1 million Mexican pesos from
business in Mexico at the end of period t. Assuming that the peso’s value is expected to be $.09 when
converted into dollars, the expected dollar cash flows are:
X
m
j¼1
¼ $ CF from U:S: operations þ $ CF from operations in Mexico
¼ $ 100,000 þ ½1,000,000 pesos ð$:09Þ
¼ $ 100,000 þ $ 90,000
¼ $190,000:
The cash flows of $100,000 from U.S. business were already denominated in U.S. dollars and therefore did
not have to be converted. l
Valuation of an MNC That Uses Multiple Currencies The same process as

just described can be employed to value an MNC that uses many foreign currencies. The
general formula for estimating the dollar cash flows to be received by an MNC from
multiple currencies in one period can be written as follows:
X
m
j¼1
EXAMPLE Assume that Yale Co. will receive cash in 15 different countries at the end of the next period. To estimate
the value of Yale Co., the first step is to estimate the amount of cash flows that it will receive at the end
of the period in each currency (such as 2 million euros, 8 million Mexican pesos, etc.). Second, obtain a
forecast of the currency’s exchange rate for cash flows that will arrive at the end of the period for each
of the 15 currencies (such as euro forecast = $1.40, peso forecast = $.12, etc.). The existing exchange rate
can be used as a forecast for the future exchange rate, but there are many alternative methods (as
explained in Chapter 9). Third, multiply the amount of each foreign currency to be received by the fore-
casted exchange rate of that currency in order to estimate the dollar cash flows to be received due to
each currency. Fourth, add the estimated dollar cash flows for all 15 currencies in order to determine the
total expected dollar cash flows in the period. The previous equation captures the four steps just
described. When applying that equation to this example, m = 15 because there are 15 different
currencies. l
Valuation of an MNC’s Cash Flows over Multiple Periods The entire

process described in the example for a single period is not adequate for valuation
because most MNCs have multiperiod cash flows. However, the process can be easily
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rook van het kampvuur. Tien exemplaren, in een flesch gedaan, gaven
zoveel licht, dat ik er met gemak bij lezen kon.
Loekoe-man. Een priester of geestenbezweerder (bij de B.), die in de

onzichtbare wereld kan zien, en dikwijls gebeden richt tot den heiligen
kankantrie, de verblijfplaats van zieken veroorzakende geesten. (Zie:
Country-fashion man). [407]
[Inhoud]
M.
Maan. Ook de maan wordt bij de meeste I.-stammen mannelijk

gedacht. Bij vele stammen van Z.-Amerika wordt de maan
aansprakelijk gesteld voor zekere toestanden gedurende het tijdperk,
waarin de vrouw kinderen kan voortbrengen. Vandaar dat zij spreken
van „maanziekte”, een onderwerp, dat de I. met voorliefde in hunne
vertellingen behandelen.
De I. spreken van manen, in plaats van maanden, hetgeen ongeveer

op hetzelfde neerkomt, daar een maand de tijd is, waarin de maan een
omloop om de aarde volbrengt.
Maconaura. (Makona-ura) was volgens Dance (D.) een I.-jongen, die

beroemd was om zijn zeldzame bekwaamheid in het visschen. Hij zou
de uitvinder zijn van de Mashwa of Masoewa. (Zie aldaar).
Maipoeri. C.-naam voor Tapir. (Zie aldaar).
Maïs of Turksch koren, in de verhalen in het algemeen koren

genoemd. Deze plant, vermoedelijk uit Mexico afkomstig, wordt zoowel
door I. op hunne kostgronden, als door de N. op hunne grondjes
verbouwd. Van de korrels wordt pap gekookt; de onrijpe, zachte
korrels worden gekookt of geroosterd gegeten. Men maakt er ook
taartjes en koekjes van, enz. Door I. en B. wordt een bijna zwarte
maïssoort geteeld.
Makoe. N.E. en C.-naam voor muskieten (Anopheles-soorten), die de

overbrengers zijn van den malaria-parasiet, de grootste plaag der
tropische gewesten.
Makoenaima behoort, evenals zijn tweelingbroeder Pia tot de

nationale helden bij sommige I.-stammen. (Zie bij: Zon). De meening,
die bij sommige schrijvers gevonden wordt, als zou Makoenaima de
Groote Geest zijn, de Schepper van Hemel en Aarde, is door anderen
(R. en K.) weêrlegd.
Malaka = Maraka (zie aldaar). Daar de r en de l bij de N. en, naar het

schijnt, ook bij I. willekeurig verwisseld worden, springen de schrijvers
over deze volken naar willekeur met deze letters om.
Manari. Zeef, voor het zeven van Cassave-meel.
Manja. N.E. naam voor (Mangifera indica L.), een grooten uit O. I.
afkomstigen boom, wiens vruchten een oranjegeel vruchtvleesch en
één groote pit hebben, door een vezelige buitenlaag omgeven. Deze
vezels dringen in het vruchtvleesch door. Er zijn verschillende
variëteiten, wier waarde voor de cultuur afhangt van de grootte van de
pit, van de hoeveelheid vezels in het vleesch en van den geur. De
manja is een der weinige veredelde tropische vruchten.
Marabons. Creoolsche naam voor wesp. De steek van vele M.-

soorten is zeer pijnlijk en kan zelfs gevaarlijk zijn. De opzwelling, door
den steek veroorzaakt, gaat niet zelden met koorts gepaard.
Maraka noemen de A. de tooverrammelaar van den piaiman of

geestenbezweerder. De Creolen noemen dit voor hem onmisbare
instrument shak shak. Het instrument is gemaakt uit een
kalebasschaal (van Crescentia cujete L.) en wordt gevuld met een
aantal kleine steentjes, waaronder liefst een of meer kwartskristallen—
voorwerpen, die de I. bezield denkt en de dragers van verschillende
Geesten voorstellen. Vooral in de steentjes zit de kracht van de
Maraka. Het gebruik van tabakswater, waarmeê de inhoud gedrenkt
wordt, is begrijpelijk uit het geloof aan de aantrekkingskracht, die tabak
en tabaksrook op de Geesten uitoefenen. Kleine gaatjes in de kalebas
verhoogen het geluid. Door de kalebas heen [408]is een stok gestoken,
aan het uiteinde met papegaaieveeren versierd, die levend uit het
lichaam van het dier moeten getrokken zijn.
Maripa-palm. Deze veel op lage terreinen voorkomende palm

(Maximiliana maripa Drude) heeft een merkwaardigen vruchttros, die
2–3 voet lang kan worden en honderden vruchten bevat, van welke het
dunne vruchtvleesch om de steenharde zaden gegeten wordt. Vooral
de groote Ara’s (Papegaaien) zijn verzot op de zaden.
Maróedi. A. naam voor een aan de fasanten verwant boschhoen

(Penelope jacupeba).
Masoewa. Vierkante of cylindervormige mand van takken en bamboe,

met trechtervormigen ingang, zoodat visschen en kreeften er wel in,
maar niet uit kunnen.
Matta. Groote uit één blok gevormde houten vijzel, in S. algemeen

gebruikt voor het stampen van de S. koffie, om deze van de schil te
ontdoen, voor het stampen van rijst, van bananen (voor de bereiding
van tontom. (Z. a.) enz.)
Moetitté. Open korf of zak, gevlochten uit de bladeren van den Pina-
palm of van andere palmsoorten, en waarin de I. vruchten enz. dragen.
Aan een katoenen band of baststrook van den Oeman barklak (Zie:
Winnamoroe), die om het voorhoofd loopt, dragen zij de korf op den
rug. De gesloten korven der N. heeten eveneens moetitté.
Mopé. Zie: Pruim.
Mora of Peto, is een tot 45 M. hooge, tot de Vlinderbloemigen

behoorende boom (Dimorphandra exelsa Baill.), die in het W. deel van
S. op leemgronden langs de oevers van den Middenloop der rivieren in
groote complexen voorkomt en een waardevol timmerhout oplevert.
Morokot is een smakelijke riviervisch (Myletes pacu Schomb.), door

de C. Pakoe genoemd en die bij de watervallen niet zeldzaam is.
[Inhoud]
N.
Nachtzwaluw. De Amerikaansche nachtzwaluwen—er zijn meerdere

soorten van het geslacht der geitenmelkers (Caprimulgus)—maken
een geluid, dat des nachts onheilspellend door het oerwoud klinkt. De
stem van de bekende soort, die naar den klank Whip-poor-will wordt
genoemd, is zóó droevig klagend, dat het niet alleen den primitieven
mensch, maar ook den ontwikkelden onderzoekings-reiziger met angst
vervult. Geen I. noch N. zal het wagen, zijn pijl of geweer op den vogel
te richten.
Napi is de stengelknol van Discorea trifida L., en wordt als aardappel

gegeten of ook tot soep gekookt. Men onderscheidt Napi met roode en
met witte knollen.
[Inhoud]
O.
Obia-man. Geestenbezweerder der B.
Obia-piaai. Bezweringsmiddel, samengesteld uit een daartoe dienend

middel der I. en der B.
Oelana-spel (ook wel oerana-spel geschreven). De spelletjes der I.-

jongens zijn veelal nabootsingen van de leefwijze der wouddieren.
Hiertoe behoort ook het O.-sp., zoogenoemd, omdat zij hierbij de
bewegingen van de Paca (Z. bij Oerana) nabootsen. Een der jongens
stelt de O. voor, verbergt zich in het bosch en wacht tot zijn
kameraadjes, die met een hond zijn spoor moeten volgen, in zijn
nabijheid zijn. Hij springt dan [409]op, ijlt naar de rivier of kreek, stort
zich hals over kop in het water en duikt onder. Zijn achtervolgers ijlen
hem na en het spel eindigt daarmede, dat de achtervolgers het
opgeven of de zg. Oelana in triumf aan den oever slepen.
Oeloekwa-toelala. Dit bekoringsmiddel, ook wel bekoring tot het

wegdrijven der liefde genoemd, wordt, volgens de Penards (P.),
bereid uit den knol van de variëteit eener plant (Calidryum bicolor).
Deze wordt gestampt; het meel wordt dan te samen met een poeder,
afkomstig uit verbrande wormen, die uit de verrotte hersenen van een
Trogon-soort (T. viridis)—ook wel houtluisvogel, in het C. Oeloekwa
genoemd—voortgekomen zijn, in een kalebas met water omgeroerd.
De genoemde vogel—en hierop berust de waarde van het

bekoringsmiddel—heeft zwakke pooten, zoodat hij niet van den eenen
tak op den anderen kan springen. Mannetje en wijfje zitten daarom
dikwijls met den rug tegen elkaar, waarom de I. dezen vogel als het
zinnebeeld van jaloerschheid, haat en tweedracht beschouwen.
Tusschen dezen vogel en genoemde plant zien de I. nu verband,

omdat de vorm van het blad veel overeenkomt met de Trogon viridis of
Oeloekwa. Vandaar de naam Oeloekwa-toelala.
Oerana (Oelana). C. naam voor een aan de Agoeti of de Acouri
verwant knaagdier (Coelogenys paca), in S. dikwijls haas genoemd.
De Paca is een nachtdier en verblijft overdag in een hol, dat twee
toegangen heeft. Het vleesch is smakelijk. (Zie: Oelana-spel).
Okra. Doosvrucht met vele zaden van een tot de Malvaceën

behoorenden heester (Hibiscus esculentus L.). De vrucht wordt in de
soep gekookt bij bereiding van tontom (Z. a.), en ook als groente
gegeten.
Otolin. Naam van een vogel, die in de litteratuur niet kon worden
opgespoord.
[Inhoud]
P.
Pagaal. Zeer waterdichte, vierhoekige mand, uit wariembo-riet (zie

aldaar) gevlochten, en zoowel door I. als door B. vervaardigd. De I.-
pagalen zijn door de zorgvuldige bewerking voor water haast
ondoordringbaar en door de met zwarte en gekleurde reepen
aangebrachte motieven, ware kunstprodukten.
Paiwarri. In Engelsch G. duidt men met dezen naam den drank aan,
die bereid wordt uit dik, eenigszins verbrand Cassave-brood, dat
gekauwd en in een korjaal gespuwd wordt. Het mout komt er bij in den
vorm van een enkele dagen te voren gereedgemaakte stroop van een
weinig gekookt Cassave-sap en eenige verbrande koeken. De korjaal
wordt daarna met palmbladeren bedekt om de massa eenige dagen te
laten gisten. Tegenwoordig is deze onsmakelijke bereiding verlaten.
De A. noemen dezen drank, die eenigszins zuur smaakt, Tapana. De I.
spreken van Tapana- of Paiwarri-feesten.
Pakira. Een der wildezwijnen-soorten van het geslacht Dicotyles, die

in de oerwouden van G. in troepen voorkomen. De Pakira (Dicotyles
torquatus) is de kleinste der twee, en leeft in troepjes van 6–8 bijeen.
Zij woelen met den snuit den grond om en geven de voorkeur aan
palm- en andere vruchten. Het vleesch van beide soorten is zeer
smakelijk.
Palissadepalm, ook Pinapalm genoemd (Euterpe oleracea), is een

sierlijke palm, waarvan de dunne stam en de groote geveerde
bladeren zeer [410]waardevol materiaal voor den bouw van woningen
en hutten oplevert. De uitgebloeide bloemtrossen worden als bezems
gebruikt.
Paloeloe (Palaloe) is de Wilde Banaan (Heliconia Bihai L.). De groote

bladeren worden door de I. voor de bedekking hunner hutten
gebezigd. Ook de aanverwante H. psittacorum L., eveneens in het
oerwoud voorkomend, wordt voor dit doel gebruikt.
Papaja. (Carica papaya L.). Boom met weeken, kalen stam en dichte
kroon van handvormig ingesneden bladeren. De vruchten zijn licht
verteerbaar, de bladeren worden gebruikt om vleesch malsch te
maken.
Parel noemt men in S. de pagaai, waarmede de booten worden

voortbewogen. Parels zijn plat en lancetvormig, en bovenaan van een
halve-maanvormige uitsnijding voorzien, waarin de hand past.
Doorgaans worden zij gemaakt van de plaatvormige steunwortels van
Aspidosperma exelsum Benth., daarom parelhout genoemd.
Pasrie, ook wel Pasirimbo genoemd, is een in der haast uit één
palmblad gevlochten korf.
Patatten. De wortelknol van een kruidachtige, kleine plant (Ipomoea
batatas L.) wordt gekookt of geroosterd gegeten, maar ook als veevoer
gebruikt. Zoowel I. als N. planten dit gewas op hunne kostgronden
aan. Switi patata (zoete patatten) is de N.E. naam.
Palatten-luis, in het fransch „bête rouge” genoemd, is de larve van

een tot de mijten (Acarina) behoorend uiterst kleine mijtsoort
(Microthrombidium batatas), die in het gras en andere planten der
bodem-vegetatie leeft, en zich door haakvormige kaken in de huid
boort. Zij brengen hier een ondragelijk jeuken te voorschijn. In het S.
oerwoud komt de plaag plaatselijk voor (C. b.).
Pawana’s. De Penards (P.), aan wien wij deze bijdrage tot de

Folklore der S. I. ontleenen, vermoeden, dat met Pawana’s bedoeld
worden de Parawana’s of Parwa-I., die hunne kampen bouwden
tusschen de wortels der aan de kust groeiende Parwa- of Mangrove-
boomen (Rhizophora mangle). Deze I. waren zeker verlekkerd op
krabben, om zoodanige plaatsen op te zoeken.
Pepers. Behalve de kleine roode Spaansche peper (Capsicum

frutescens), worden in G. nog andere Capsicum-soorten gekweekt,
wier vruchten een belangrijke specerij voor den peperpot (Z. a.) zijn.
Het is een oude gewoonte bij I. van G., om pepers (gedroogde
Capsicum-vruchten) in het vuur te strooien, ten einde een vijand te
verdrijven. (No. 10 der I.-serie).
Peperpot (kasripopot), bereidt men uit pap van de bittere Cassave, die
men tot een bittere brij laat koken. In den pot, die volgens I.-geloof
nooit mag worden schoongemaakt (zie No. 26), wordt het voorradige
vleesch en de visch met veel Spaanschen peper dooreengeroerd, om
een der voornaamste gerechten van den I. te bereiden. Altijd staat bij
hen een peperpot klaar. De peperpot wordt steeds bijgevuld.
Piengo of Piengoe (Poeingo bij de C. en Dodele of Keheron bij de A.)

is een der beide boschvarkens (zie Pakira), in troepen door de
oerwouden van G. trekkend. Piengo is de negerengelsche naam voor
Dicotyles labiatus. In kudden van 20–100 stuks trekt deze op voedsel
uit, onder leiding van een aanvoerder, door de N. Piengo-granman
genoemd. Zij trekken in rechte lijn en zijn daarom gevaarlijk voor hen,
die in het bosch kampeeren. Des morgens vroeg trekken zulke troepen
dikwijls de rivieren over (C. b). Het vleesch is smakelijk, als zorg wordt
gedragen, de klier aan de rugzijde, die een naar muskus riekende stof
afscheidt, snel uit te snijden. [411]
Pijnen. Het vermogen, om lichaamspijnen te verdragen, wordt bij de I.

hoog geschat. Vandaar de pijnlijke proeven, waaraan de tot jongeman
bevorderde I. maar in het bijzonder de candidaat-hoofdman en de
candidaat-piaiman zich hebben te onderwerpen (o.a. de wespen- en
de mierenproef).
Pisang. Zie: banaan.
Pot. Zie: peperpot.
Potaro-val, ook wel Kaieteur’s-val—zoo genoemd naar den ouden

man, die er den dood vond, is een 822 voet hooge waterval in de
Essequibo (Britsch-G.), ontdekt door Barington Brown. De I.
noemen hem Oude man’s val.
Powies. Deze tot de hoenders behoorende vogel (Crax alector) is een

der meest gezochte wildsoorten van G. Een zijner borstspieren is wat
wij een flinke lap vleesch noemen. Van de rivier uit is deze vogel niet
moeielijk onder schot te krijgen.
Pruim. Wat hier pruim genoemd wordt is de z.g. Spondias-pruim, de

gele vrucht ter grootte van een kleine pruim van den Mopé (Spondias
lutea L.), een grooten boom, in het oerwoud van G. veel voorkomend.
Deze vruchten worden door den Tapir en den schildpad (Z. a.) als
lekkernij opgezocht. In S. beweert men, dat een vreemdeling, die
eenmaal deze vrucht geproefd heeft, nooit meer de kolonie verlaat.
Púskita. Het jaarlijksche groote feest, door de Creek-I. van Alabama
en Georgia sedert overoude tijden gevierd, en dat acht dagen duurt.
[Inhoud]
R.
Regenkikvorsch. Zie: Wau-oeta-kikvorsch.
Reiger. Onder de reigersoorten, die in West-Indië voorkomen, wordt

met egret of Herodias egretta, doch vooral Leucophoyx candidissima
(de blauwe Sabakoe) bedoeld, die om de sierlijke kopveeren, als
„aigrettes” zeer gezocht, veel geschoten wordt. In S. wordt deze vogel
nog steeds niet beschermd, hoewel ernstige pogingen, o.a. door mijn
tochtgenoot C. v. Drimmelen, hiertoe gedaan zijn. In Columbia en
andere Staten van Amerika heeft men reeds lang het belang hiervan
ingezien. De reigers, die aan de kust van Jamaica veel voorkomen,
vliegen ook dikwijls ver landwaarts en zijn zeer verlekkerd op de kleine
krabben, die in de bergriviertjes voorkomen.
Roode ras. Zie: Roodhuid.
Roodhuid. De naam Roodhuid, die de I. hebben gekregen, is te

danken aan de gewoonte, om hun huid met Koesoewe—een roode
kleurstof, verkregen door een laag om de zaden van Bixa orellana L.
met Krappa-olie te vermengen—in te wrijven. De huidskleur der I. is
meestentijd min of meer licht koperkleurig, dikwijls ook kaneelkleurig.
Met de roode kleurstof worden ook de kleedingstukken en het
aardewerk rood gekleurd.
[Inhoud]
S.
Sabakoe. Zie: Reiger.
Samboela. C. naam voor trom. De I. trom is een uitgehold stuk

boomstam, dikwijls van den Maripa-palm. Over beide open uiteinden is
een herten- of boschvarkensvel gespannen. Bij de dansfeesten
hangen deze trommen met touwen aan dwarsbalken der hut of aan
een daartoe opgestelde stellage van bamboe (zie afb. in C. a.). [412]
Saoeba-mier (ook Saba-mier), wordt ook blad- of parasolmier (Atta

cephalotes) genoemd, omdat deze mier soms in één enkelen nacht
geheele boomen ontbladert. Bij deze rooftochten begeven deze
mieren zich bij millioenen in bepaalde optochten naar de boomen
(vooral naar de jonge Mora-boomen), snijden de bladeren in stukken
en laten deze op den grond vallen. Zij nemen de bladfragmenten
tusschen de kaken en dragen deze recht overeind naar het nest (C.
b.), waar door de rotting van de massa een kleine champignon
ontstaat, van welke deze mieren leven (Champignon-tuinen). De
Saoeba-mier is bij de C. het zinnebeeld van succes.
Savanne. Schaarsch begroeide vlakte, wier bodem doorgaans,

hoewel niet altijd, uit zand bestaat.
Schildpad. In de oerwouden van G. komt slechts één schildpadsoort

voor (Testudo tabulata Wahlb.). door de C. Wajamoe, door de A.
Hikoeli genoemd. De N.E. naam is Sekrepatoe. Deze landschildpad
kan een lengte van 5 dec. bereiken, voedt zich met allerlei planten en
vruchten, is vooral verlekkerd op de zg. Spondias pruimen (zie: Pruim).
Bij de C. is de schildpad het zinnebeeld van verliefdheid.
Schimmel. Hier wordt een brandschimmel (Ustilago-soort) bedoeld,

die veel schade aan de Maïs doet.
Schoonmoeder. Voordat Europeesche invloeden zich bij de I. deden
gelden, was het een I. ten strengste verboden, de hut zijner
schoonmoeder binnen te gaan, met haar te spreken, zelfs naar haar te
kijken.
Schopappel. (Sur. Skopappel). Zie: Anona.
Scolopendra. Zie: Duizendpoot.
Sekrepattoe. N.E. voor schildpad (zie aldaar), meer bepaaldelijk voor

landschildpad.
Semi-tchichi of Semi-cihi, door de A. gebruikt, wordt door hen ook

gebezigd voor al hetgeen men doet of gebruikt, om zich de noodige
tooverkracht te verzekeren.
Specht. In G. komen verschillende spechtsoorten voor, die ook daar

„Timmerman” worden genoemd. Ook in G. hebben bijna alle spechten
een rooden bovenkop of kuif. Het gehamer of geklop kan men ver in
den omtrek hooren.
Springmand. Mand, voorzien van een schuifdeur, waaraan een naar

beneden gebogen tak is vastgemaakt. Wanneer de visch zich met een
aan deze tak bevestigd lokaas wil verwijderen, wipt de tak omhoog en
schuift de deur dicht.
Soesa. Dans, waarbij de voeten beenbewegingen de hoofdrol

vervullen, en waarmeê de mannen en jongens zich bij de N. vermaken
(C. b.)
Steenen bijl. Het voorgeslacht der tegenwoordige I. gebruikte steenen

bijlen, die in gedaante volkomen overeenstemmen met de gepolijste
bijlen uit het Neolithische tijdperk der menschelijk praehistorie in
Europa. Deze bijlen zijn eertijds bij de I. van geheel W.-I.—ook bij die,
welke de eilanden bewoonden—in gebruik geweest. Dit werktuig of
wapen bestond uit een hard, op een steenblok geslepen steenstuk, dat
niet zelden een waar kunstprodukt is. Niet elke I. schijnt zijn eigen bijl
te hebben vervaardigd, maar hij ruilde die bij andere stammen of
dorpen in, waar bepaalde werkplaatsen voor het slijpen bestonden,
evenals dit ook in de Neolithische periode—de tijd van den gepolijsten
steen—in Europa het geval is geweest. Men vindt zulke bijlen niet
zelden als oudheden in den bodem van G.; maar ook van Curaçao en
andere W.-I. eilanden zijn zij bekend. Merkwaardig is het, dat—evenals
elders, ook [413]in ons land—ook de S.-bevolking gelooft, dat deze
bijlen gedurende een onweer uit de lucht zijn komen vallen. Vandaar
ook daar de volksnaam: dondersteenen. De C. gelooven, dat deze
bijlen door Konomeroe (den Dondergod) uit woede naar den grond
geslingerd zijn, teneinde den onverlaat te treffen, die zijn dochter
onteerde. Een legende doelt hierop (P. a.). De Aroaksche traditie
omtrent oude bijlen luidt, dat men deze eertijds zoo waardevolle
werktuigen van een verre landstreek moest halen en dat jaren noodig
waren, om deze streek te bereiken. Een der legenden, die zulk een
lange reis beschrijft, heeft Walter E. Roth (R.) medegedeeld.
Stinkvogel. In S., waar zij door de N. Tiengi-fouroe (eigenlijk fouloe,

van het Engelsche fowl) genoemd worden, verstaat men onder dezen
naam verschillende giersoorten. Een kleine soort (Catharista atrata) is
geheel zwart en doet als vuilnisman in Paramaribo dienst, waar hij
beschermd wordt. Een zeer fraai gekleurde en groote soort
(Koningsgier, Gypagus papa, ook wel Tiengi fouroe granman =
gouverneur der stinkvogels genoemd) komt in het oerwoud voor (C.
b.).
Stekelvarken. Coendu prehensilis is een knaagdier, welks huid met

zwarte en gele stekels bedekt is, een lange grijpstaart heeft en in
boomen huist.
Swamp. Moerassige plaats in de oerwouden van Guyana.
Swaroedaroe. Zwaar vergiftigde pijl.

[Inhoud]
T.
Tabbertje. (N.E. tábiki) ook wel tabbetje of tappetje (bij oude

schrijvers) genoemd, is een eiland in de rivier.
Taboe. Iets wat verboden is. (Zie blz. 37).
Tairu-blad. Vermoedelijk het pijlvormige blad van tajers. (Zie aldaar).
Tajers zijn variëteiten van twee Collocasia-soorten (C. esculenta en C.

antiquorum), van welke de verdikte boven- en onderaardsche
stengeldeelen gegeten worden. De wilde tajer (N.E. Krassi-taja) is
wegens de vele kristalnaalden en scherp melksap niet als voedsel te
gebruiken.
Tamanaca’s. Een C.-stam.
Tamanoea. C. en A.-naam voor den grooten miereneter

(Myrmecophaga jubata L.). Met zijn kleverige, wormvormige tong, die
snel uit den langen, in een puntigen snuit eindigenden, tandeloozen
bek gestoken kan worden, bemachtigt de T. duizenden mieren en
termieten tegelijk. Als tegenstander is de T. zeer gevaarlijk, want hij
tracht, overeindstaande, met de groote sikkelvormige nagels der
achterpooten zijn aanvaller den buik open te rijten.
Tamoesi. Een der namen, waarmede door de I. de Groote Geest

wordt aangeduid. Aan deze namen ligt echter niet het geloof aan God,
volgens Christelijke begrippen, ten grondslag.
Tapana. Zie: Paiwarri.
Tapir. In de oerwouden van G. is het grootste zoogdier de T. (Tapirus

americanus), een soort van het ook in Azië levende geslacht Tapirus,
door de N. bóffroe (= buffel) genoemd. Dit vierhoevige, van een korten
snuit voorziene, dikhuidige dier, leeft van bladeren en vruchten.
Evenals de landschildpad is de T. zeer verlekkerd op de z.g. Spondias-
pruim (Zie: pruim). Een zeer gewild jachtdier bij de I. (Zie: Maipoeri).
Tijger. In Amerika komt de tijger, de groote fraai gestreepte

kattensoort [414]van Azië, niet voor. Zoowel in de I.- als in de N.-folk-
lore wordt met Tijger steeds de Jagoear (Z. a.) bedoeld.
Tobe-horo-anna, dat in het Warrausch letterlijk huid van den zwarten

tijger beteekent, is ook de naam, dien men geeft aan een reusachtig
groot, zeer gevreesd roofdier, dat, naar beweerd wordt, diep in het
woud leeft, doch dat men nog nimmer gezien heeft. De Warraus
gelooven, dat het dier een tijger (= jagoear) is gedurende zijn
strooptochten door het bosch, maar dat hij thuis een gewoon mensch
is. 2
Tomahawk. Strijdbijl der Noord-Amerikaansche I., gelijk de Apatoe (Z.

a.) is bij de Zuid-Amerikaansche stammen. De strijdbijl is bij alle I. het
symbool van den strijd.
Tom-tom of Tontòm (N.E.) is een pudding van gekookte en gestampte

bananen, ook van meel en dergelijke. Op etenstijd komt de I. vrouw
der Benedenlandsche C. (C. a.) haar man de tontom brengen, die hij
niet met haar eet.
Trens. Vaart of kanaal voor de afwatering (= loostrens) of voor het

vervoer der produkten door en van de plantage naar de rivier (=
vaartrens).
[Inhoud]
V.
Vampier. In G. komen bloedzuigende vleermuizen (o.a. Desmonus

rufus) voor, die des nachts menschen en dieren bloed uitzuigen, en die
men Vampiers noemt. Het zijn groote vleermuissoorten, wier bepaling
nog onzeker is. Het muskieten-net over de hangmat beveiligt de
slapenden tegen den beet, waarvan men niet wakker wordt, omdat het
dier door zuigen met de lippen de huid vóór den beet ongevoelig
maakt.
Vergiffen, hier meer in het bijzonder bedoeld als hulpmiddel bij de

vischvangst. De I. gebruiken verschillende plantenvergiffen, om
visschen te verdooven. Het meest in gebruik is de nekoe (een
liaansoort). De kreken worden daartoe zoodanig afgedamd, dat het
water wel kan wegstroomen, maar dat de uitweg is afgesneden. De in
het water geworpen gifstof bedwelmt de visch, die spoedig komt
bovendrijven.
Verweeringskorst. De korst, die in G. vele gesteenten, in het

bijzonder de donkergetinte kalkrijke en veel ijzer houdende, kristallijne
gesteenten bedekt, en deze tegen verdere verweering beschermt
(daarom door de duitsche aardkundigen „Schutzrinde” genoemd),
bestaat in hoofdzaak uit een oxyd van ijzer en mangaan. Hoe rijker het
gesteente aan donkere ijzer- en mangaanrijke mineralen is, des te
meer de korst op gepotlood ijzer gelijkt. (C. c. blz. 62, enz.).
Vloed. Onder talrijke Indianenstammen, zoowel van Noord- als van

Zuid-Amerika, wordt het geloof aan een grooten vloed in hunnen
mythen- en legendenschat aangetroffen. De Zuñis bijv. die in een dorre
streek in het westelijk deel van Nieuw-Mexico leven, nemen aan, dat
zij van hun oorspronkelijk verblijf, meer westwaarts gelegen, door een
grooten watervloed in oostwaartsche richting verdreven zijn geworden
naar een heerlijke Mesa (= tafelland) van rooden en witten zandsteen,
waar zij, blijkens de uitgebreide pueblo (= stad of dorp)-ruïnen—met
belangrijke tempels gewijd aan den vader Zon, de moeder Maan en de
oorlogsgoden[415]—zeer lang moeten hebben gewoond (K.). Ook de
mythen en sagen van de I. van G. vertellen meermalen van een vloed,
waarbij slechts een klein deel der menschheid, soms één
menschenpaar, zich heeft weten te redden. In verband hiermede is het
de aandacht waard, dat in een jonge periode, die vermoedelijk
samengevallen is met de diluviale periode of den ijstijd in Europa, van
de bergen van G. enorme vloeden moeten afgestroomd zijn, die, door
hun zooveel grooter transporteerend vermogen dan de tegenwoordige
rivieren, aan uitgebreide afzettingen het aanzijn hebben gegeven
(leem-, klei- en zandgronden, afgewisseld met uit grover materiaal
gevormde lagen, zg. conglomeraten, brecciën en zandsteen) die het
zg. Savannegebied vormen, dat het bergland van de lage alluviale
gronden scheidt (C. c. blz. 44–54) en die aan de oevers langs de
benedenrivieren bij laag water in banken te voorschijn komen.
Het is verre van onwaarschijnlijk, dat de mensch in bedoelde periode

ook reeds Amerika bewoonde. Dat reeds lang uitgestorven dieren nog
steeds in de herinnering van een volk konden blijven voortleven,
hebben de legenden geleerd, die bij de oorspronkelijke bewoners van
Australië zijn opgeteekend, en zo kan het niet verwonderen, dat van
deze vloeden nog bij de tegenwoordige I. de herinnering bewaard is
gebleven.
Vogelspin. Zeer groote spinnen, zoo genoemd, omdat zij ook wel
eens kleine vogels, als Kolibries, overvallen. Men onderscheidt nog
twee soorten Mygale blondii, en M. avicularia. De eerste is de grootst
bekende spinnensoort. Het sterk behaarde dier leeft in den grond,
waarin het gangen bewoont (soms 60 cM. lang), aan wier ingang het
tegen den avond op de loer ligt. De tweede soort is kleiner en maakt
haar zakvormig spinsel overal, op boomen, tusschen de bladeren der
ananas, in huizen.
[Inhoud]
W.
Waaier. De vrouwen der I. gebruiken, om het vuur aan te houden en te

doen opvlammen, kleine waaiers, zeer kunstig uit de bladeren van den
Maripa-palm gevlochten.
Waiyarri. Een inderhaast uit palmbladeren gevlochten mand.
Wariembo of Warimbo is een kruidachtige, tot de Eenzaadlobbigen

behoorende plant (Ischnosiphon gracile Körn.), uit wier stengels, die
eenige meters lang worden, dunne reepen gesneden worden, die voor
allerlei vlechtwerk gebruikt worden.
Watercamoedi is de Water-boa of Anaconda. Zie: Camoedi.
Waterhond, N.E. Watra-dágoe, behoort tot het geslacht der Otters

(Lutra) van de Marterachtige roofdieren. Van dit geslacht komen in de
rivieren van G. twee soorten voor, waarvan de voornaamste Lutra
brasiliensis is. Als de dieren hunne ronde koppen boven water steken,
trachten de N. ze door nabootsing van hun stem aan te lokken, om ze
beter onder schot te kunnen krijgen (C. b. blz. 46).
Watra-dagoe. Zie: Waterhond.
Wau-oeta-Kikvorsch behoort tot de vele in G.’s wildernissen levende

boomkikvorschen, een groep, die o.a. gekenmerkt is door het bezit van
verbreedingen (zuignappen) aan de teeneinden. Zeer waarschijnlijk
wordt met dit dier bedoeld de Regenkikvorsch (Hyla venulosa), die des
nachts in de bosschen zoo erbarmelijk kan schreeuwen. [416]
Wicissi-eend. R. noemt deze eend Anas autumnalis. De Wic. is

echter vermoedelijk de Wisi-Wisi of Skroerti der N., een boomeend, die
in G. algemeen is en in de wetenschap den naam draagt van
Dendrocygna discolor.
Winnamoroe. Bast van den Oeman-barklak (Bignonia inaequalis), een

boom waarvan de binnenste schorslaag als zg. sigarettenpapier door
de I. gebruikt wordt. Als zij geen tabak hebben, rooken zij deze schors
alleen. Zulke sigaretten zijn wel een decimeter lang (C. b.). Deze
schorslaag werd door de N. op de Nickerie-expeditie gebruikt om
vrachten te dragen, daar zij zeer sterk is. (Zie: de plaat in C. b., blz.
159).
Winti. Een der afgoderij-dansen der B., vermoedelijk van

Afrikaanschen oorsprong, waarbij de dansers en danseressen in een
toestand van opwinding en razernij geraken, waarin de Wintiman—een
door sommige schrijvers verkeerdelijk gebruikte naam—uitspraken
doet, waaraan onvoorwaardelijk geloof wordt gehecht. Zie voor dit nog
duistere onderwerp: Encyclopedie v. W. I. Ook bij Stadsnegers is de
Winti-dans nog in zwang.
Wintiman. Zie: Winti.
Wonderblad. Zie: Levensboom.
Wonderboom. Zie: Levensboom.
[Inhoud]
Y.
Yams. Zie: Jams.
Yarri-yari. I.-fluit, veelal uit bamboe vervaardigd.

Yurokon. Zie: Joroka.
[Inhoud]
Z.
Zandvloo. De zandvloo (Sarcopsylla penetrans), in het N.E. Sika

genoemd, komt veel op zandgronden voor, waar I. hunne kampen
hebben. Deze vloo boort zich in de huid der voeten in, geeft aanleiding
tot een opzwelling van de grootte van een erwt en kan, wanneer het
gestorven moederdier niet met de eieren verwijderd wordt, tot
verzweringen aanleiding geven. De I. vrouwen en meisjes zijn zeer
bedreven in het verwijderen van de Sika’s door middel van een door
den onderlip gestoken speld. (C. a.).
Zeekust. In de modderige kuststreek van G., bedekt met

Mangroveboomen of Rhizophoren, die met hunne luchtwortels uit het
slijk omhoogrijzen en de aanslibbing zoozeer bevorderen, wemelt het
van krabben, die hunne gaten in- en uitkruipen en niet zelden tegen de
wortels omhoog klimmen. Zie: Krab.
Zuurzak. Zie: Anona.
Zwarte tijger. Zie: Jagoear.
1 Bij de samenstelling van dit register is, behalve van de geschriften, in het
litteratuur-overzicht genoemd, een ruim gebruik gemaakt van de Encyclopedie
van Ned. West-Indië. ↑
2 Een gelijksoortig geloof komt ook bij andere primitieve stammen voor (o.a. bij de
oorspronkelijke Koeboes van Zuid-Sumatra). ↑

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International Financial Management

13th Edition Jeff Madura

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PART 1: The International Financial Environment 1

PART 2: Exchange Rate Behavior 185

PART 3: Exchange Rate Risk Management 295

PART 4: Long-Term Asset and Liability Management 415

PART 5: Short-Term Asset and Liability Management 575

PART 1: The International Financial Environment 1

2: INTERNATIONAL FLOW OF FUNDS 33

3: INTERNATIONAL FINANCIAL MARKETS 63

4: EXCHANGE RATE DETERMINATION 103

4-2c Equilibrium Exchange Rate, 106

5: CURRENCY DERIVATIVES 131

PART 2: Exchange Rate Behavior 185

7: INTERNATIONAL ARBITRAGE AND INTEREST RATE PARITY 227

8: RELATIONSHIPS AMONG INFLATION, INTEREST RATES,

PART 3: Exchange Rate Risk Management 295

10: MEASURING EXPOSURE TO EXCHANGE RATE FLUCTUATIONS 325

10-2c Transaction Exposure Based on Value at Risk, 332

11: MANAGING TRANSACTION EXPOSURE 355

12: MANAGING ECONOMIC EXPOSURE AND TRANSLATION

PART 4: Long-Term Asset and Liability Management 415

14: MULTINATIONAL CAPITAL BUDGETING 437

15: INTERNATIONAL CORPORATE GOVERNANCE AND CONTROL 477

15-2c Barriers to International Corporate Control, 480

16: COUNTRY RISK ANALYSIS 503

17: MULTINATIONAL CAPITAL STRUCTURE AND COST OF CAPITAL 527

17-3 Subsidiary versus Parent Capital Structure Decisions, 533

18: LONG-TERM DEBT FINANCING 551

PART 5: Short-Term Asset and Liability Management 575

19-3 Agencies That Facilitate International Trade, 587

20: SHORT-TERM FINANCING 595

21: INTERNATIONAL CASH MANAGEMENT 611

Appendix A: Answers to Self-Test Questions, 643

Organization of the Text

Approach of the Text

Changes to this Edition

Additional Course Tools

Anne Perry, American University Ahmad Sohrabian, California State Poly-

Part 1 (Chapters 1 through 5) provides an overview of the multinational corporation

Foreign Exchange Markets

CHAPTER Multinational corporations (MNCs) are defined as firms that engage in

1-1 Managing the MNC

1-1a How Business Disciplines Are Used to Manage the MNC

1-1b Agency Problems

motivated by a manager’s desire to receive more compensation rather than to enhance

Parent Control of Agency Problems The parent corporation of an MNC may

Corporate Control of Agency Problems In some cases, agency problems can

How SOX Improved Corporate Governance of MNCs One limitation of the

1-1c Management Structure of an MNC

Exhibit 1.1 Management Styles of MNCs

Cash Management Financial Managers Cash Management

Inventory and Inventory and

Cash Management Financial Managers Financial Managers Cash Management

Inventory and Inventory and

1-2 Why MNCs Pursue International Business

1-2a Theory of Comparative Advantage