Contents
1. What is intemational money all about?
The foreign exchange markets
Eurocurrency markets
2. The essence of currency calculations
Foreign exchange markets
Inflation, interest and exchange rates
Practicalities
An overview
Appendix: A deductive proof of the four-way equivalence
model
3. How are foreign exchange rates quoted?
The players
Methods of quotation
Forward contracts and quotations
An overview
4. What makes exchange rates move?
The balance of payments approach
The monetary approach
Chartism
The effident markets hypothesis
An overview
5. What is foreign exchange risk?
Transaction exposure
Translation exposure
Economic exposure
An overview
6. Why worry about foreign exchange risk?
Transaction exposure
Economic exposure
Translation exposure
An overview
7. Internal techniques of managing foreign exchange
exposure
Netting
Matching
Leading and lagging
Price variation
Invoicing in foreign currency
Asset and liability management
An overview
8. External techniques of managing foreign exchange
exposure
Forward markets
Trading purpose of the forward market
Short-tenn borrowing
Discounting foreign currency denominated bills receivable
Factoring foreign currency denonunated receivables
Currency overdrafts
Government exchange risk guarantees
An overview
9. What are currency swaps?
Swaps
An overview
10. What are finandal futures on foreign exchange?
Financial futures in general
Currency contracts
An overview
11. How do currency options work?
How currency option markets work
Currency option strategies
Option pricing models
Corporate use of currency options
An overview
12. Interest rate risk
The term stmcture of interest rates
Forward rate agreements
Interest rate futures
Interest rate swaps
Interest rate options
An overview
13. The value of growth options
An example using decision trees
Flexibility and value creation
The Black and Scholes model
Another example with dedsion trees
An overview
14. Is the international investment dedsion different?
The international complications
An overview
15. Is the international financing decision different?
The Eurobond market
Borrowing intemationally
The risks of borrowing internationally
An overview
16. The European Monetary System
Principal features of the EMS
The Exchange Rate Mechanism
European Monetary Union
German reunification
Black Wednesday
The wake of Black Wednesday
An overview
17. Why hedge anyway?
the capital asset pricing model
What does exposure management aim to achieve?
The arguments against corporate hedging
Employees and managers
And shareholders too
The value of the firm
Financial distress
An overview
18. Economic exposure revisited
Macroeconomic exposure
The analysis
Hedging
Interest rates invariably key
Experiments with macroeconomic exposure
An overview
Questions and answers
Numerical questions
Bramit Investment Trust plc
Answers to numerical questions
Suggested answers to the Bramit Investment Trust
questions
Further reading
Index
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