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se Map for
Eun/Resniick: International Finanncial Manag
gement
(McGrraw-Hill/Irwiin)

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d by an editor at HBS Publishing, not byy a teaching p
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aculty at Harvard
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he cases andd articles.

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PART I FO
OUNDATION
NS OF INTER
RNATIONAL FINANCIAL
F M
MANAGEME
ENT
Chapter 1:
1 Globalizattion and
the Multin
national Firmm Abstractt
Creating the
t International Trade In the late 194 40s, officials aat the U.S. Sttate Departme ent began
Organizattion: David A. Moss; campaigning
c for
f the creatio on of an Interrnational Trad de Organizatio on
George Appling;
A Andreew Archer (ITO). This ne ew organizatio on would oversee global negotiations on
Product #:
# 798057 trade liberaliza ation, foreign direct investm ment, cartels, and commodity
Length: 25
5p agreements;
a and
a it would ccomplement tthe IMF and the World Ban nk,
Teaching Note: 701107 7 both
b of which were founded d at the Bretton Woods Co onference in 1 1944
to address international fin ancial flows. Together, the e IMF, the Wo orld
Bank,
B and the e ITO would ccomprise a co omprehensive e system for thhe
management
m of internationnal economic affairs. As it tturned out,
however,
h the proposed ITO O proved conttroversial both within the U United
States
S and aro ound the worrld.
Learning
L Objjective: 1) inttroduce stude ents to the vitaal and comple ex
role
r of interna ational institut ions in the glo
obal economyy; 2) expose
students
s to the special diffiiculties and ch hallenges tha at were assocciated
with
w the creatiion of one pa rticular intern national institu
ution, the ITO; and
3)
3 provide students with ba ackground on the evolution n of trade rela
ations
and
a trade policy since the m mid-nineteentth century.
Economicc Gains from Trade:
T How
H nations trade
t and whe ether they benefit from it aare two of the
Comparattive Advantag
ge oldest
o and mo ost important questions in political econ nomy. In the 170
(HBS Note): Robert E. years
y since David Ricardo formally deve eloped the the eory of
Kennedy; Nancy Koehn comparative
c advantage,
a it has become one of the principles mostt
Product #:
# 796183 widely
w accepted among pro ofessional ecconomists. De espite this wid
de
Length: 7p acceptance
a in
n the professio onal commun nity, the basiccs of internatio
onal
trade are still poorly undersstood by man ny policy make ers and casual
commentators
c s. This note inntroduces the e theory of comparative
advantage.
a It is divided intoo four sectionns. The first presents a sho ort
history
h of the concepts beh hind compara ative advantag ge. The secon nd
develops
d a simmple model w with several exxamples to de emonstrate th he
gains
g that result from trade e between nattions. The third briefly cove ers
several
s extens sions of the ssimple model.. Finally, two ttraditional
objections
o to free
f trade aree reviewed. A rewritten verrsion of an ea arlier
note.
n
Subjects
S Cov vered: Busine ess governme ent relations; International
trade; Macroe economics; Na ational compe etitiveness

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Note on Comparative
C Discusses
D Da
avid Ricardo'ss theory of com mparative advvantage and the
Advantage: David B. Yoffie
Y ; refinement
r of his model de eveloped by E Eli Heckscher and Bertil Oh hlin.
John J. Coleman Presents
P seveeral criticismss of the Hecksscher-Ohlin th
heory, includin
ng
Product #:
# 387023 Wassily
W Leonttief's empiricaal demonstrattion that the n
nature of U.S..
Length: 6p im
mports and exports were e exactly contra
ary to the pred
dictions of the
e
Teaching Note: 3890399 theory.
Subjects
S Covvered: Comp etition; Exporrts; Imports; International ttrade;
Macroeconom
M mics
Chapter 2:2 Internationnal
Monetary y System Abstractt
The 1994-95 Mexican Peso Explores
E the peso
p crisis off 1994-95 and d why it occurrred. Studentss are
Crisis *(HBS Note): Keenneth A. asked
a to exam mine Mexico'ss policies, the e capital markket's reactionss, and
Froot; Maatthew McBrad dy the implication
ns of devalua ation for future
e capital flowss and growth.
Product #:
# 296056 Learning
L Objjective: To diiscuss capitall markets and d their effects on
Length: 255p exchange
e rate
es.
Collapse in Asia--19977-98 * Discusses
D the
e Asian crisis and economiists' opinions and solutionss.
(HBS Note): George C. C Lodge; Subjects
S Covvered: Asia; E Economic con nditions; Interrnational finan
nce;
Anthony St.
S George Macroeconom
M mics; Southea ast Asia
Product #:
# 798084
Length: 244p
The Pereg grine Debaclee: Michael In January 1998, Peregrine e Investmentss Holdings Ltd d., once billedd as
J. Enright ; Vincent Ma
ak "Asia's
" only in
ndigenous invvestment bankk," was forced d into liquidattion
Product #:
# HKU168 after
a the revellation of hugee losses in its fixed-income e business an nd the
Length: 255p withdrawal
w of potential inveestors from Europe and the e United States.
Peregrine
P beccame the high hest profile co
orporate failurre in the Asian
financial
f crisis
s to date. A firrm that seemed to be on to op of its world
d in
early
e 1997 had collapsed u under a pile o of bad debts le
ess than a year
la
ater. Peregrinne's demise ra aised questioons about how w the firm mig ght
have
h avoided the debacle. This case ca an be used to teach corporrate
governance
g and strategy ddevelopment iin volatile envvironments.
Subjects
S Cov vered: Asia; IInternational ffinance; Invesstment bankin ng;
Risk
R managem ment
Chapter 3:
3 Balance of
Payments s Abstractt
Thailand in
i May and Ju une of Diagnose
D the economic sittuation, evaluate the availaable options, a
and
1997: Huggo E.R. Uyterrhoeven recommend
r a course of acction.
Product #:
# 398131 Subjects
S Covvered: Balancce of paymen nts; Economicc policy; Fisca
al
Length: 11p policy;
p Inflation; Monetary p policy; Southeeast Asia; Un
nemployment

Kennedy and the Balan nce of In 1960, the United

U States was facing a balance of payments prob blem.
Payments s: David B. Yo
offie ; Gold
G reservess were being d drained, Ameerican products were losing g
Jane K. Austin
A competitivene
c ess, and the ddollar was undder attack. Thhis case analyyzes
Product #:
# 383073 the roots of th
his problem, pprovides an oppportunity to d discuss in depth
Length: 16
6p balance
b of payments accou unting, and allows studentts to explore
Teaching Note: 385241 1 various
v solutioons to balancce of paymentts difficulties.
s available
Exercises Subjects
S Covvered: Balancce of paymen nts; EC single e market;
Economic
E policy; Internatio
onal trade; Moonetary policyy; National
competitivene
c ess

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Exchangee Rate Policy at the D Khor Hoe Ee, head of tthe Economiccs Departmen
Dr. nt of the Mone etary
Monetary Authority of Authority
A of Singapore (MA AS), is respon nsible for policcy
Singaporee: Mihir A. De
esai; recommendat
r tions on Singa apore’s excha ange rate reggime. Singapore
Mark F. Veblen
V had
h experienc ced strong ecconomic grow wth over the prrevious decad des,
Product #:
# 204037 during
d which the
t MAS care efully identifie
ed a target excchange rate rrange
Length: 25
5p and
a employed d a managed float policy to oward the cou untry’s exchan nge
Teaching Note: 206029 9 rate.
r Now, Drr. Khor has to o determine if this managed d float policy
remains
r consiistent with the e country’s ecconomic goalss and if it rem mains
practicable
p in the light of re
ecent econom mic upheavalss in the region n,
most
m notably the
t Asian fina ancial crisis.
The
T case examines how m monetary and exchange ratte policy is
formulated
f an
nd implemente ed, and descrribes how a ccentral bank
in
nfluences exc change rates.. It provides a framework for understan nding
the economic determinantss of exchange e rates and exxplores excha ange
rate
r regime chhoice.
Learning
L Objjective: To lo ook at the dete erminants of exchange rattes,
central
c banks, and moneta ary policy.
Chapter 4:
4 Corporatee
Governan nce Around the
t
World Abstractt
The Hermmitage Fund: Media
M William
W Browd der, the top exxecutive of th he Hermitage Fund, the be est-
and Corpoorate Governance in performing
p intternational eq quity fund ove er the last fivee years, attribu uted
Russia: Alexander
A Dycck much
m of his fuunds' strong re returns to its ffocus on sharreholder activism
Product #:
# 703010 and
a corporate e governance . In 2001, he was putting tthis approach to
Length: 24
4p the test by acc cusing the Ru ussian oil andd gas giant Ga azprom and tthe
Teaching Note: 7030333 nternational accounting
in a firm
m Price Wate erhouse Coop pers of not
stemming
s gov vernance prob blems. Althou ugh the press provided
extensive
e covverage of Gazzprom's proble ems and the share price ro ose,
Browder
B failedd in his other efforts to gett a board seatt, and his lawsuits
were
w dismisse ed. Was it timme to refine orr change this activist strate egy?
These
T were th he questions Browder (and d his investorss) considered d as
he
h left on a long overdue vvacation.
Learning
L Objjective: Illustrrates the exte ent of corpora ate governancce
problems
p in firrms, identifiess mechanism ms investors ca an use to add dress
concerns
c about misgovern ance, introdu uces the poten ntial role of th
he
media
m as a ch heck on corpo orate governa ance problemss and how firm ms
can
c use this to ool as part off their strategyy, and explore es the
opportunities
o and risks to sshareholder a activism.
Incentive Strategy II: Executive
E Used
U in the co ourse Coordin nation, Contro ol, and Manag gement of
Compens sation and Ow wnership Organizations
O s at the Harva ard Business School. Analyyzes incentive e
Structure:: Brian Hall strategy
s from the perspectiive of a comp pany's board o of directors an nd
Product #:
# 902134 owners.
o The focus
f is the ro
ole that execu utive compenssation and
Length: 444p ownership
o struucture (the co omposition off, and financia al structure
between,
b a coompany's own ners) play in mmotivating value-creating
behavior.
b
Learning Ob bjective: To ssynthesize and summarize e the course.
PetroChinna: Internation
nal PetroChina,
P th
he largest oil and gas com mpany in China a, was made a
Corporatee Governance e with showcase
s for sound corporrate governan nce in China'ss state-owned d
Chinese Characteristic
C cs: John enterprises
e (S
SOEs). Its initiial public offe
ering (IPO) wa as part of the
Child; San
ng Xu; Mary HoH government's
g plan to lay th
he groundworrk for other larrge capital-sta arved
Product #:
# HKU183 SOEs
S on the global
g capitall market. In sp pite of the resstructuring effforts,

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Length: 20
0p some
s analysts s felt that the company wa as not yet closse to where it
Teaching Note: HKU18
84 needed
n to be in terms of in nternational goovernance sta andards.
Learning
L Objjective: To exxpose studen nts to the rangge of issues
relating
r to corrporate govern nance with C Chinese chara acteristics. In
analyzing
a China's political a and economic background d and
PetroChina's
P governance
g m
model, this caase demonstrrates that the
corporate
c govvernance systtem in China offers limited protection for
minority
m share eholders.
Corporate
e Renewal in America:
A Discusses
D varrious macroecconomic, regulatory, techn nological, and d
Bruce R. Scott
S Thomass S. financial
f force es that led to iincreased corrporate restru ucturing in the e
Mondsche ean United
U States beginning in the mid-1980 0s. The U.S. ffinancial system is
Product #:
# 702018 often
o viewed as a the most d developed in tthe world and d a model for other
Length: 32
2p countries
c to fo
ollow. Similarlly, the U.S. m model of corpo orate governa ance--
with
w its empha asis on share eholder value and an active e market for
corporate
c conntrol--is also vviewed as a m model. Examin nes pressuress for
corporate
c resttructuring and d the emergen nce of an active market for
corporate
c conntrol for very laarge firms beeginning in thee early 1970s.
Discusses
D the
e effects of th is restructurinng on corporaate profitabilityy and
productivity.
p Provides
P data on the evolution of a num mber of indicattors
of
o performanc ce, including p productivity byy sector, marrket capitaliza
ation
relative
r to rep placement cosst, and rates o of return both
h on assets an nd on
equity.
e In brieff, it finds that U.S. firms sh howed significcantly improved
after-tax
a returns on shareh holder equity oover the periood while failing to
make
m significa ant improvem ments on their pre-tax returns on assets---
adjusted
a for thhe effects of tthe business cycle. Given the lack of
comparable
c accounting da ta on returns across counttries, conclusions
about
a the perfformance of U U.S. firms verrsus European ones isn't
possible.
p
Learning
L Objjective: To co ompare and e evaluate Germ man, Japanesse,
and
a U.S. finan ncial systemss. Also, to disccuss how a fin nancial system
liike the United d States' has been driven llargely by ma arket rather thhan
policy
p forces.
Sustainabble Development and Several
S investtment firms a and mutual fun nds position tthemselves ass
Socially Responsible
R In
nvesting: providers
p or faacilitators of o
opportunities for socially reesponsible
ABB in 20000: Forest Reinhardt in
nvestment. This case addrresses the im mpact of thesee firms on pub blicly
Product #:
# 701082 traded compa anies. Focuse es on manage ers at ABB, a large multina ational
Length: 377p based
b in Switz zerland that h has tried to bee a leader in iintegrating
principles
p of sustainable
s deevelopment in nto its businesss strategies..
ABB's
A managers now need d to decide w hat sorts of reelationships th hey
would
w like to haveh with the firms in the ssocially respo
onsible investm ment
community,
c annd the extentt to which theyy ought to takke the prefere ences
of
o these firms into account in tailoring th heir business strategies.
Learning
L Objjective: Unde erstand the ch hannels throuugh which
environmenta
e lly and sociallly "pro-active
e" behavior might be rewarrded
in
n the capital markets,
m and assess the likelihood thatt these reward ds
will
w actually materialize;
m unnderstand the possible valu ue proposition ns of
firms
f that offer services rel ating to socia ally responsibble investmentt.

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
The Boardd's Missing Liink: The
T causes off many corpo orate governance problemss lie well below the
Cynthia A.
A Montgomery; surface--spec
s cifically, in crittical relationsh
hips that are not structured d to
Rhonda Kaufman
K support
s the players involve ed. In other w ords, the veryy foundation o of the
Product #:
# R0303F system
s is flawwed. And unle ess we correcct the structura al problems,
Length: 7p surface
s chang ges are unlike ely to have a llasting impacct. When
shareholders,
s managemen nt, and the bo oard of directo ors work togetther
as
a a system, they t provide a powerful se et of checks a and balances. But
the relationship between sh hareholders a and directors is fraught witth
weaknesses,
w undermining the entire sysstem's equilib brium. As the
authors
a explain, the exchan nge of informmation betwee en these two
players
p is poo or. The authorrs suggest se everal ways to o improve the
relationship
r beetween share eholders and directors: Inccrease board
accountability
a y by recording g individual dirrectors' votess on key corpo orate
resolutions,
r seeparate the p positions of ch hairman and C CEO, reinvigo orate
shareholders,
s and give boa ards funding tto pay for outtside experts w who
can
c provide perspective on n crucial issue es.
Learning
L Objjective: To diiscover strate egies for impro oving informa ation
exchange
e betwween board m members and d shareholderrs, so board
members
m can make more iinformed decisions.
PART II THE
T FOREIGN EXCHANG GE MARKET, EXCHANGE E RATE DETE ERMINATION N, AND
CURRENCY DERIVAT TIVES
Chapter 5:5 The Marke et for
Foreign Exchange
E Abstractt
Capital Coontrols Only
O in the wa aning years o of the 20th cen ntury did interrnational finan ncial
(HBS note e): Rawi Abdeelal; markets
m beginn to enjoy the freedom from m governmen nt regulation thhat
Laura Alfaaro they had expe erienced befo ore the first wo orld war. By 2 2002, internattional
Product #:
# 702082 capital
c marketts had grown to be enormo ous--$1.2 trillion flowed aro ound
Length: 6p the globe per day. The masssive size of tthe market prresented policcy
makers
m with a serious challlenge, as the ey were forced d to grapple wwith
the costs and benefits of su uch mobile ca apital. This no ote briefly rela
ates
the modern hiistory of capittal controls an nd summarize es scholarship p on
the advantage es and disadvvantages of in nternational financial market
regulation.
r
Learning
L Objjective: The a advantages a and disadvanttages of
in
nternational financial
f markket regulation.
Exchange e Rate Exercis se: Tests
T students' understand ding of exchange rate anallytics and how w
Robert E. Kennedy shifts
s in excha ange rates afffect firms' eco onomics.
Product #:
# 701122 Learning
L Objjective: To re einforce excha ange rate lessons.
Length: 3p
Alphatec Electronics Pcl: Stuart The
T newly app pointed CEO of an importa ant high-techn nology compa any
C. Gilson;; Perry L. Fag
gan; C. in
n Thailand must lead the ccompany thro ough a complicated debt
Fritz Foley
y restructuring.
r Due to the co ollapse of thee Thai currenccy, the compa any's
Product #:
# 200004 debt
d burden, like
l that of mo ost Thai comp panies, has sskyrocketed
Length: 300p because
b it hass borrowed h eavily in U.S.. dollars. The new CEO, w who is
a U.S. citizen,, must restruccture the com mpany under the recently
revised,
r and laargely unteste ed, new Thai bankruptcy la aw. The new law
allows
a trouble ed companiess to reorganize e their busineesses followin ng an
approach
a thatt is similar, buut not identica al, to that praccticed in the
United
U States under Chaptter 11 of the B Bankruptcy Code.
Learning
L Objjective: Restrructuring fina ancially distresssed compan nies in
a non-U.S. se etting, understtanding the im mpact of dram matic exchang ge

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 rate
r shocks on n corporate vvaluation, and d understandin ng the impactt of
le
egal rules and d systems on n corporate re esource allocaation.
Note on Foreign
F Excha ange*: Describes
D the
e operation off foreign exchange marketss, including bid-
Scott P. Mason;
M William
m B. Allen offer
o spreads,, cross rates, reciprocal rattes, and forwa ard rates.
Product #:
# 286067 Provides
P seveeral exampless to demonstrrate calculatio on of outright
Length: 155p forward
f rates using discoun nt and premiu um points quo oted in the Loondon
Financial
F Time es. Other exa amples demonstrate intere est rate parity,, and
hedging
h foreig
gn debt using g long-dated fo orwards.
Subjects
S Covvered: Capita al markets; Cu urrency; Foreeign exchange e;
Hedging;
H Interrest rates
Note on Foreign
F Currency Provides
P desccriptive backg ground about the developm ment of an
Swaps: W.
W Carl Kesterr in
nternational market
m for currrency swapss and, by mea ans of a detailled
Product #:
# 9-292-043 example,
e instrructs readers in the determ mination of swwap flows and d all-
Length: 11p in
n costs of finaancing using market swap rates. A rewrritten version of an
Teaching Note: 2930066 earlier
e note.
Subjects
S Covvered: Capita al markets; Cu urrency; Foreeign exchange e;
Hedging;
H Interrnational ban king; Internattional finance
Foreign Exchange
E Marrkets and This
T note first describes the e foreign exchange marke et and explain ns the
Transactioons: Mihir A. Desai, basic
b calculations required d to employ exxchange ratess, determine cross
Christina B. Pham, Kattheleen exchange
e rate
es, and meassure currency depreciationss and
Luchs, Yaanjun Wang appreciations
a . The note th hen looks at fo orwards, futurres, swaps an nd
Product #:
# 205016 options
o and ex xplores why ffirms use thesse derivative instruments.
Length: 288p Finally,
F the no ote introducess some of the e economic de eterminants o of
Teaching Note: 206032 2 exchange
e rate
es, using exam mples to illusstrate interest rate parity an
nd
purchasing
p poower parity. T The note inclu udes a proble em set so read ders
can
c practice and a consolida ate their understanding of e exchange rate es.
Subjects
S Covvered: Econo omic determin nants; Exchange rate
transactions; Derivative insstruments
Chapter 6:
6 Internationnal Parity
Relationsships and
Forecasting Foreign
Exchange e Rates Abstractt
Note on Fundamental
F Parity Provides
P a sim
mple framewo ork for analyzzing expected exchange ra ate
Conditions*: W. Carl Kester movements.
m Basic
B parity a nd equilibrium
m conditions a are presented d
Product #:
# 288016 in
ncluding purc chasing powe er parity, forwaard parity, inte
erest rate parrity,
Length: 9p the domestic Fisher effect, and the interrnational Fish her effect (Fisher
Teaching Note: 290026 6 open).
o Empiriccal evidence about these cconditions is d discussed.
References
R arre provided.
Subjects
S Covvered: Capita al markets; Fo oreign exchan nge; Foreign
exchange
e rate
es; Internation nal finance
MSDI-Alcala de Henares, Merck
M & Co., Inc. is evaluaating a propossed cost-savin ng investmen nt by
Spain: Timothy A. Lue
ehrman; itts Spanish suubsidiary. The e case introdu uces techniqu ues of discoun nted
James J. Student cash
c flow valu
uation analysiis in a multicu urrency setting. Can be used to
Product #:
# 289029 teach basic innternational pa arity conditionns as they rellate to the vallue of
Length: 6p operating
o cash flows.
Teaching Note: 2900466 Subjects
S Covvered: Europ e; Foreign exxchange ratess; Internationa al
finance;
f Pharmmaceuticals; Project evalu uation; Securitties analysis;
Valuation
V
Chapter 7:
7 Futures an
nd
Options on
o Foreign Exchange
E Abstractt

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Futures on the Mexican Peso*: The
T Chicago Mercantile Exxchange need ds to decide h how to design n, and
Kenneth A. A Froot; Mattthew whether
w and when
w to introd
duce, a future es contract on n the Mexican n
McBrady; Mark Seasho oles peso.
p
Product #:# 296004 Subjects
S Cov vered: Comm modity marketts; Country an nalysis; Foreiggn
Length: 22 2p exchange
e ratees; Internation nal finance; M
Mexico; Mone ey; Money ma arkets
PART III FOREIGN
F EXXCHANGE EX XPOSURE AND A MANAGE EMENT
Chapter 8: 8 Manageme ent of
Transaction Exposure Abstractt
Note on Transaction
T an
nd Describes
D thee transaction a and translatioon exposures that companies
Translatioon Exposure *:* W. Carl doing
d busines ss internationa ally face when foreign exchange rates
Kester; Richard P. Melnick change.
c Also discusses ho ow to measure e and cover b both types of
Product #:# 288017 exposure.
e Cov vering techniq ques are dem monstrated ussing exampless of
Length: 10 0p forward
f coverr, money markket hedges, a and options m market hedgess.
Teaching Note: 290027 7 Other
O covering devices, su uch as swaps and leads an nd lags, are also
presented.
p Exxplains how th hese exposurres relate to e each other and
what
w can be done
d to minimmize overall fooreign exchan nge risk.
Subjects
S Cov vered: Accou unting procedu ures; Foreignn exchange;
Foreign
F excha ange rates; In nternational finnance; Management
accounting
a
Metallges se Metallgesellsc
M chaft AG is a commodity a and engineerin ng conglomerrate
llschaft AGG: David F. Hawkins;
H based
b in Frannkfurt am Main n, Germany. Metallgesellsschaft Corp., a
Guy Weyn ns New
N York bas sed subsidiaryy of the group p, has made o oil trading andd
Product #:# 194097 hedging
h errorss that could d drive the group into insolve ency. The imp pact
Length: 5p of
o hedge acco ounting rules on the qualityy of the inform mation availab ble to
top managem ment is examin ned.
Learning
L Objjective: To ill ustrate the fuundamental isssues in
accounting
a forr hedges and d to show the tradeoffs thatt have to be m made
when
w choosin ng between de eferral hedgee accounting a and mark-to-
market-hedge
m e accounting.
N.V. Philipps Electronics
s: Describes
D Phiilips Electroniics' policies aand problems relating to forreign
Currency Hedging Policies: exchange
e risk
k and hedging g. Explains ce entralization vversus
Richard F.F Meyer decentralizatio
d on of currenccy hedging; ecconomic role versus transa action
Product #:# 295055 role;
r the difficuulties of captu uring the nece essary informmation centrally;
Length: 18 8p and
a assigning g currency ga ins and losse es in a matrix system of
management.
m .
Learning
L Objjective: To sh how the probllems of imple ementing a forreign
currency
c hedg ging system in n a very largee, multi-divisio
onal global
corporation.
c
Aspen Te echnology, Inc c.: The
T chief financial officer o of a rapidly-grrowing U.S.-b based softwarre
Currency Hedging Rev view: firm
f that sells its process-ccontrol softwa are to industriaal users aroun nd
Peter Tufa ano; Cameron the globe mus st review the g goals, strateggies, and policcies of the firm
m's
Poetzsche er currency
c hedg ging program . This review is prompted by changes in n the
Product #:# 296027 firm's
f busines ss, notably its acquisition o of a United Kin ngdom subsid diary,
Length: 19 9p other
o growing overseas exxpenses, and its recent initial public offe ering.
Teaching Note: 298091 1 Learning
L Objjective: Inten nded to allow students to a analyze how a
small,
s young firm's
f businesss strategy crreates currenccy exposure a and a
need
n to mana age this expossure. Designe ed to allow stuudents to exp plore
the goals and purposes of currency hed dging, the mea asurement off
exposures,
e annd appropriate e policies to b
be followed.
Hedging Currency
C Risk
ks at AIFS
A organize es academic a and cultural eexchanges for students,
AIFS: Mih hir A. Desai; Vincent
V sending
s over 50,000 Amerrican studentss abroad each h year for studdy

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Dessain; Anders
A Sjöma
an programs
p and d tours. Reve enues are larg gely in U.S. do
ollars while co osts
Length: 17
7p are
a largely in euros. AIFS sets prices fo or the programms months in
Product #:
# 205026 advance
a and guarantees itts prices once e they are pubblished in its
Teaching Note: 206025
5 catalog.
c Everry year, Contrroller Christop pher Archer-LLock and CFO O
Becky
B Tabacz zynski must d decide whethe er to hedge a euro-dollar
exposure
e befoore they know w the magnitu ude of the expposure. Theyy have
to make hedging decisionss well before tthe company knows how m many
students
s will sign
s up for its programs. C Currency flucttuations and
in
nternational crises
c can havve a severe im mpact on sale es volume.
Archer-Lock
A and
a Tabaczyn nski have to qquantify the exxposure creatted
by
b this misma atch in costs a and revenuess and/or differe ent exchange e rate
scenarios
s andd also want too explore the iimplications o ofo using various
mixes
m of forwaards and optio ons in their hedging strateegy.
Learning
L Objjective: To exxamine the orrigins of foreig gn exchange
exposure,
e the instruments available for currency hed dging, and the e
decisions
d a coompany mustt make on when to hedge, how much off its
exposure
e to hedge, and wh hat instrumen nts to use to h
hedge its
exposure.
e
Chapter 9:9 Manageme ent of
Economic Exposure Abstractt
Note on Operating
O Expposure to Describes
D the
e effects on op
perating cash h flows of a re
eal change in
Exchange e-Rate Chang ges *: exchange
e rate
es. Describess different elem
ments of operating exposu ure
Timothy A.
A Luehrman and
a includes illustrative
i exaamples.
Product #:
# 288018 Subjects
S Covvered: Currenncy; Foreign e exchange rattes; Internatio
onal
Length: 11p finance;
f Intern
national opera
ations
Teaching Note: 293012 2
Tiffany & Co.--1993* : W.
W Carl The
T restructurring of Tiffanyy's retailing ag greement with h Mitsukoshi Ltd.
Kester ; Kendall
K Backsstrand in
n 1993 expos sed Tiffany to substantial yyen/dollar excchange rate
Product #:
# 295047 volatility
v that itt had not prevviously faced. This new exxposure requires
Length: 122p Tiffany
T to esta ablish risk ma
anagement po olicies and praactices.
Teaching Note: 298014 4 Management
M must determ ine whether to hedge, wha at the objectivve of
hedging
h ought to be, how m much exposure to cover, a and what
in
nstruments to o use. Teachi ng Objective:: To introduce e students to the
problems
p of risk managem ment in a relatiively uncomplicated
administrative
a e situation.
Subjects
S Cov vered: Curren ncy; Foreign e exchange rattes; Retailing; Risk
management
m

Universal Circuits, Inc. *: The

T manager of internation nal finance off a major U.S.. electronics
Thomas R.
R Piper company
c is co
oncerned abo out the exposure of the firmm to changes in
Product #:
# 286006 exchange
e rate
es. Of particu lar concern iss the exposurre of operation
ns to
Length: 13
3p changes
c in real exchange rates. The tea aching objecttives include: 1)
Teaching Note: 293008 8 understanding
u g operating exxposure and contractual exposure; 2)
understanding
u g the issues in
n estimating o operating expposure; 3)
understanding
u g possible acttions to neutrralize operatin
ng exposure; and
4)
4 assigning responsibility ffor the manag gement of opperating expossure.
Subjects
S Covvered: Electroonics; Financcial managem ment; Foreign
exchange
e rate
es; Internation
nal finance
Ibersnackks, Provides
P a fra
amework for inntroducing the analysis of costs of finan ncing
S.A. *: Do
onald R. Lessard; for
f different cuurrency choicces. Allows for the measure ement of the
Ahmad Ra ahnema foreign
f exchange risk and its impact on the firm's fina ancing costs as

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Product #:
# IES017 well
w as its ope erating margin n. Also deals with the linkss between the e
Length: 8p firm's
f competiitive position a and its choice e of financing
g.
8
Teaching Note: IES018 Learning
L Objjective: Proviides basis forr discussion o on the concep pt of
economic
e exp
posure and de escribes how a domestic fiirm is exposed to
foreign
f exchange risk.
Harley-Daavidson, Inc.---1987 *: After
A an LBO and near ban nkruptcy in the e early 1980ss, Harley-Davvidson
W. Carl Kester;
K Julia Morley
M makes
m an asto onishing reco overy, going p public in 19866. Its listing on
n the
Product #:
# 292082 New
N York Sto ock Exchange e in 1987 provvides the occa asion of an eq quity
Length: 18
8p analyst
a to pub blish a researcch report in w which she musst issue a buyy,
sell,
s or hold re ecommendati on for Harleyy's stock. Com mplicating herr
analysis
a is the e fact that Harrley still facess vigorous Japanese
competition
c annd, therefore,, has a significant operatin ng exposure to o the
yen/dollar
y excchange rate. S Stimulates disscussion about operating
exposure
e to re
eal exchange e rate changess.
Subjects
S Cov vered: Foreig gn exchange rrates; Interna ational business;
International finance;
f Moto orcycles; Valuation
Jaguar plc
c--1984*: Tim
mothy A. A vehicle for analyzing
a the exposure of operating cassh flows to
Luehrman n; William T. Schiano
S exchange
e rate
e changes. Co onsiders the vvalue of Jagu uar plc at the time
Product #:
# 290005 of
o its privatiza ation and sharre offering in 1984. Jaguarr is a major
Length: 13
3p exporter
e from the United K Kingdom and tthe United Sta ates is therefo ore
Teaching Note: 290034 4 exposed
e to ch hanges in the dollar/sterling g exchange rrate. Studentss are
asked
a to estimmate the value e of the comp pany as a function of expected
future
f exchange rates. Stu dents may also be asked w whether and how
Jaguar's
J expo osure should b be hedged.
Subjects
S Cov vered: Autom mobiles; Foreign exchange rates; Industtry
analysis;
a Interrnational finan nce; Privatizaation; Stock offferings; Valu uation
Foreign Exchange
E Heddging Eric
E Feldstein is responsib le for managing foreign cu urrency risks a at
Strategies
s at General Motors:
M General
G Moto ors. Currencyy exposures th hat arise from
m transactionss in
Competitive Exposures s: Mihir A. foreign
f curren ncies are mosstly addressed d by the comp pany’s corporrate
Desai; Maark F. Veblen hedging
h policy y. The compa any’s hedging g policy, howeever, does no ot
Product #:
# 205096 address
a all of the risks thatt GM faces fro om changes in exchange rrates.
Length: 9p Although
A GM sells few carss in Japan, Fe eldstein perceeives that GM M has
Teaching Note: 206081 1 a significant competitive
c exxposure to the e yen. Feldsttein reasons tthat
an
a anticipated d depreciation n of the yen a against the U.SS. dollar would
give
g Japanese e automakerss a sizable co ost advantage e relative to GGM in
the U.S. mark ket, thus allow wing them to ttake market sshare away fro om
GM
G and otherr U.S. car makkers. GM’s ccompetitive exxposure to the e yen
is
s a long-stand ding strategicc concern among GM execcutives, but
discussions
d on what to do about it have e been largelyy hypothetical. As
a consequenc ce, Feldstein a aims to devellop an analytiic framework to
quantify
q GM’s s yen exposurre to allow GM M to better ma anage the risks
that arise from m this compettitive exposurre.
Learning
L Objjective: To an nalyze compe etitive exposu
ures and
appropriate
a he
edging policie es.
Chapter 10:
1 Managem ment of
Translatio
on Exposure e Abstractt
Machineryy Internationa
al (A): A U.S. compa any must deciide how to tra anslate its German subsidiary's
David F. Hawkins
H DM
D financial statements
s intto U.S. dollarrs for public a
and internal
Product #:
# 100012 reporting
r purp
poses.
Length: 6p Learning
L Objjective: Exploore financial aand behaviora al implicationss of
Teaching Note: 101076 6 different
d approoaches to tran
nslation of fin
nancial statem ments from on ne

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B case avvailable currency
c to an nother. A rew written version of an earlier case.
Foreign Exchange
E Heddging The
T treasury team t at Gene eral Motors (GGM), headed by Eric Feldsstein,
Strategies
s at General Motors:
M is
s responsible e for managing g the corporaation’s varied financial
Transactioonal and Tran
nslationaltransactions and a their asso ociated risks. With operations and
Exposures: Mihir A. Deesai; Marksubsidiaries
s all
a over the wo orld, GM has exposure to n numerous
F. Veblen currencies.
c The
T company’ s hedging po olicy defines w what exposure es
Product #:
# 205095 should
s be hed dged and how w the prescribbed hedges sh hould be
Length: 244p im
mplemented. GM’s passivve hedging sttrategy is intended to minim mize
Teaching Note: 206031 1 management
m time and disccretion spent on hedging d decisions and does
not
n usually ac ccommodate h hedging transslational expo osures.
Exceptions
E to the hedging policy must b be approved b by Feldstein w who
is
s currently rev viewing two m much proposa als for the Caanadian dollarr and
the Argentinea an peso. Fel dstein and his team have to evaluate G GM’s
exposure
e to each currencyy, determine th he risks, conssider other
approaches
a to
o managing th hese currencyy risks, and d decide if GM
should
s departt from its form mal hedging po olicy. If Feldsstein does
approve
a exceptional hedge es for one or bboth of these currencies, h he
must
m also con nsider what in nstruments to use to implem ment the hedges.
The
T two curre encies pose d ifferent proble ems for Gene eral Motors. T The
firm
f has a larg ge transaction nal exposure to the Canad dian dollar, an
nd a
sizable
s transla ational expos ure. Feldsteiin must determine how
fluctuations
f in
n the U.S. dolllar/Canadian dollar exchan nge rate woulld
im
mpact GM’s income statem ment, and alsso consider th he longer termm
im
mplications of o the firm’s exxposure to the e Canadian d dollar. In effecct,
the GM policy y does not reg gularly allow h
hedging of tra anslational
exposures
e but the CAD exp posure is subbstantial enou ugh to merit
review.
r In the e case of the A Argentinean p peso, Feldste ein has to deccide
how
h GM shou uld deal with tthe widely antticipated deva aluation of the e
peso.
p Would it be cost-effe ective for GMM to hedge mo ore of its expoosure,
or
o are there other actions tthat GM might take to mitig gate the effeccts of
a peso devalu uation?
Learning
L Objjective: To an nalyze foreign
n exchange h hedging decissions,
the appropriatte design of r isk managem ment policies, and multinational
financial
f mana agement.
PART IV WORLD FINA ANCIAL MAR
RKETS AND INSTITUTIO ONS
Chapter 11:
1 Internatio onal
Banking and Money Market
M Abstractt
CSFB's China
C Unicom Incident: In August 200 01, Credit Suissse First Bosston (CSFB), a major
Michael J. Enright; Vincent Mak in
nternational in nvestment ba ank, was remo oved from the e foreign
Product #:
# HKU187 underwriting
u team that wou uld handle a ppending share e offering for
Length: 20
0p China
C Unicom m Group Ltd., the second la argest telecom mmunicationss
Teaching Note: HKU21 17 company
c in th he Chinese M Mainland. Onlyy two months earlier, CSFB B
was
w designate ed to deal witth the U.S. po ortion of that o
offering. Howe ever,
after
a the bank k hosted oversseas investm ent "road sho ows" attended d by
senior
s government officialss from Taiwan n (including thhe finance
minister),
m it wa as officially drropped from tthe China Unicom underwriter
liist. The incide ent provoked criticism from m governmentts in the Unite ed
States
S and Ta aiwan and wid despread activity in investm ment banking g
circles
c as several other ban nks dropped plans to host road shows ffor
Taiwan.
T
Learning
L Objjective: To te each how bussiness decisio ons may beco ome

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 caught
c up in political
p difficu
ulties and how w companies need to formulate
strategies
s and d policies to a address such issues.
Malaysia: Capital and Control
C On
O Septembe er 1, 1998 the e government of Malaysia iimposed curre ency
Rawi: Abddelal; Laura Alfaro
A and
a capital co ontrols in resp ponse to the ffinancial crisiss that had swe ept
Product #:
# 702040 Asia.
A The con ntrols sparked d an enormous controversyy in the world of
Length: 31p in
nternational finance.
f Some e celebrated tthe controls fofor insulating tthe
Teaching Note: 703020 0 Malaysian
M ecoonomy from th he unstable in nternational ffinancial systeem.
Others
O criticiz
zed the contro ols for trapping investors and allowing th he
government
g to
o protect the interests of "ccronies." Thiss debate also
raised
r the cen ntral question about the futture of the intternational
financial
f archiitecture: Wha at is the approopriate balancce between
financial
f mark ket freedom a and governme ent discretion in the
management
m of the global economy?
Learning
L Objjective: The p political economy of capita al controls in
Malaysia
M durin ng the Asian financial crisis.
Korea Firs
st Bank (A): Yasheng
Y In December 1999, Newbr idge Capital, an equity invvestment fund d
Huang ; Kirsten
K J. O'Neil- based
b in San Francisco, su uccessfully ne egotiated withh the Korean
Massaro government
g to
o acquire con ntrolling intere
est in Korea FFirst Bank. It wwas
Product #:
# 701022 the first time ever
e a foreignn financial insttitution acquirred a Korean
Length: 26
6p Bank.
B The neg gotiation wass difficult and protracted, an nd the two siddes
Teaching Note: 702043 3 tried hard to re each an agre eement that w would preserve e the interestss of
Suppleme ent available both.
b The case examines tthe conditionss and the mottivations
underlying
u one of the mostt significant accquisition dea als in the Koreean
economy.
e Lea arning Objec ctive: To teacch the comple exities involve ed in
an
a acquisition n of a bank in a previously closed financcial system.
Europeann Monetary Un nion On
O January 1, 1999, 11 Eu uropean coun ntries unified ttheir currenciees--
Richard H.K.:
H Vietor ; Sabina
S 48
4 years afterr their first inte egrative effort
rts. This markks a huge
Ciminero development
d in the structu re of Europe and the world d's economy. This
Product #:
# 799131 case
c examine es the integrattive process, the Single Eu urope Act and d its
Length: 32
2p im
mpact on market structure e during the past 13 years, and monetarry
Teaching Note: 799155 5 union.
u Provide es data as of 1998 on Euro opean macroeconomics
Suppleme ent available in
ntegration and data in the mid-1990s on n integration of product
markets,
m capittal markets, a and labor marrkets.
Subjects
S Cov vered: Busine ess governme ent relations; Competition;
Currency;
C EC single marke et; Eurodollarss; Europe; Intternational
business;
b Mac croeconomicss
Europeann Monetary Un nion: Supplements
S case listed ab bove.
Honeywell Europe: Ric chard Subjects
S Cov vered: Busine ess governme ent relations; Competition;
or ; Sabina Ciminero
H.K. Vieto Currency;
C EC single marke et; Eurodollarss; Europe; Intternational
Product #:
# 799151 business;
b Mac croeconomicss
Length: 4p

Chapter 12:
1 Internatio onal
Bond Market Abstractt
Hutchisonn Whampoa Ltd.:
L The Hutchison
H Whhampoa was cconsidering sstrategies for its long-term
Capital Sttructure Decission: capital
c structu
ure. The HK$3 35 billion Hon
ng Kong-base ed conglomerate
Andrew Karolyi;
K Larry Wynant;
W had
h ambitious s growth planss in multiple bbusiness secttors in different
Geoff Cruum; Peter Yua an geographies.
g Traditionally, like many of its domestic peers, Hutchison
Product #:
# 99N021 had
h relied enttirely on shortt- to medium-tterm bank loa ans. Its demaand
Length: 266p for
f long-term financing,
f attrractive rates iin other capita
al markets

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Teaching Note: 899N21 (especially the e United State es), and conccern about a m more diversifiied
in
nvestor base had led Hutcchison to explore other fina ancing optionss. In
particular,
p the company wa as debating th he benefits off a Yankee Bo ond
Offering.
O At th
he time, Hutch hison had alre eady approacched Moody'ss and
Standard
S & Po oor's for a bo
ond rating.
Subjects
S Cov vered: Capita al budgeting; China; Financcial strategy;
International finance
f
European n Bank for The
T European n Bank for Re econstruction and Develop pment, the firsst
Reconstru uction and supranational
s financial insttitution of the post-Cold Wa ar era, is plan
nning
Developmment: Marketin ng itts debut in the e internationaal capital marrkets through a bond issuance
Strategy for
f the Debut Bond of
o $500 million n. The bank m must determin ne its marketing strategy fo or the
Offering: Jeffrey
J F. Ray
yport offering
o on two levels--pos itioning of the e institution an
nd of the bond
Product #:
# 594005 offering
o itself. Integral to thhe marketing ttask is the selection of a le ead
Length: 23 3p manager,
m who o will determin ne the marke eting mix. The e mix decision ns
Teaching Note: 596115 5 in
nvolve determ mining producct (currency, m maturity, couppon), pricing
(yield), promo otion (road sho ows and med dia relations), and distribution
(formation of the t syndicate e). In addition,, the lead manager will nee ed to
select
s appropriate target m markets (retail and institutio onal investorss),
along
a with ove erall positionin ng for the insstitution.
Subjects
S Cov vered: Bankin ng; Bonds; Ea astern Europe e; International
banking;
b Inves stment bankin ng; Marketing g strategy; Pricing; Social
Walt Disney Co.'s Yen Walt
W Disney is s considering hedging futu ure yen inflowws from Disneyy
g: W. Carl Kes
Financing ster ; Tokyo.
T It is ev
valuating tech hniques using FX Forwardss, swaps, and d Yen
William B. Allen term borrowin ngs. Goldman n Sachs prese ents a rather uunusual but
Product #:
# 287058 potentially
p attrractive solutio
on: Disney co ould issue ECU Eurobondss and
Length: 11p swap
s into a Yen liability. Th he case expla ains how this alternative w would
Teaching Note: 2010933 work
w and sugg gests to the sstudents wayss to evaluate the hedging
choices.
c
Subjects
S Cov vered: Bondss; Capital marrkets; Currenccy; Hedging;
International finance
f
Chapter 13:
1 Internatioonal
Equity Maarkets Abstractt
Global Eq
quity Markets:: The Royal
R Dutch and
a Shell com mmon stocks are securitiess with linked ccash
Case of Royal
R Dutch and
a Shell*: flow,
f so that thhe ratio of theeir stock price es should be ffixed. In fact, the
Kenneth A.
A Froot; Andre F. ratio
r is highly variable, movving with the markets where the securitties
Perold are
a intensively y traded. Royyal Dutch trad des more activvely in the
Product #:
# 296077 Netherlands
N and
a U.S. markkets, whereass Shell tradess more activelly in
Length: 19
9p the United Sta ates. The resu ult is that the Royal Dutch//Shell relative e
Teaching Note: 201093 3 price
p moves positively
p with
h the Netherla ands and U.S. markets and d
negatively
n with the U.K. ma arket. The ab bility to arbitrage these
disparities
d andd their causess are major case focal poin nts.
Learning
L Objjective: To de emonstrate how valuation is affected byy the
lo
ocation of trade/ownership p, and why arrbitrage doesn n't lead to
in
ntegration of international financial marrkets.
Compania a de Telefono
os de The
T newly priv vatized Chilea an telephone e company, Co ompania de
Chile * : W.
W Carl Kester ; Telefonos
T de Chile (CTC) m must raise su ubstantial new w funds extern nally
Enrique Ostale
O ; Charle
es M. La in
n order to finaance its expansion program m. This task is complicated d by
Follette Chile's
C small, illiquid capita
al markets and d the skeptica al view of Latin
Product #:# 293015 American
A borrrowers held b by investors o outside of the region. CTC''s
Length: 21p chief
c financial officer must determine if llisting Americcan Depositorry
Teaching Note: 298019 9 Receipts
R (ADRRs) on the Ne ew York Stock Exchange is a viable

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 financing
f optio
on for the commpany.
Subjects
S Covvered: Capita al markets; Eqquity financingg; Internation
nal
finance;
f Southh America; Te elecommunications
Huaneng Power International, Itt is early Octoober 1994, an nd Huaneng P Power Interna ational (HPI), an
Inc.: Raising Capital in Global in
ndependent powerp produccer in the Peoople's Republiic of China (P PRC),
Markets *: Steve R. Fo oerster; is
s in the proce ess of executiing a global eequity issue too raise funds ffor
Andrew Karolyi;
K Jerry White
W the constructio on of new pow wer plants. The company is planning to o list
Product #:
# 98N001 the new share es through an n American De epositary Recceipt program m on
Length: 266p the New York Stock Excha ange. The com mpany has re ecently reduce ed
Teaching Note: 898N01 the price of the issue due tto poor marke et conditions aand investor
resistance
r to the
t price rang ge stated in th
he preliminaryy prospectus.. The
student
s must decide, as HP PI manageme ent, whether tthe new offer price
and
a choice of listing exchange is reason nable in light o
of recent marrket
events
e and the political, ecconomic, socia al, and technoological
environment
e in the PRC.
Subjects
S Covvered: China ; Electric pow wer; Internatioonal finance; SStock
offerings;
o Valuuation
Chapter 14:
1 Interest Rate and
Currencyy Swaps Abstractt
Note on Foreign
F Currency Provides
P desccriptive backg ground about the developm ment of an
Swaps*: W.
W Carl Keste
er in
nternational market
m for currrency swapss and, by mea ans of a detailled
Product #:
# 292043 example,
e instrructs readers in the determ mination of sw wap flows and d all-
Length: 11p in
n costs of fina ancing using market swap rates. A rewrritten version of an
Teaching Note: 2930066 earlier
e note.
Subjects
S Covvered: Capita al markets; Cu urrency; Fore eign exchange e;
Hedging;
H Interrnational ban king; Internattional finance
Gaz de Frrance* W. Ca
arl Kester; The
T treasurer of Gaz de Frrance is an ag ggressive, pro oactive mana ager
William B. Allen of
o his compan ny's liability sttructure, running one of the e largest swap
Product #:
# 288030 books
b of any non-financial
n corporation in the world. C Currency futures,
Length: 18
8p in
nterbank forw wards, and cu urrency option ns are also fre equently used d to
Teaching Note: 2900233 control
c the company's multti-currency lia ability structurre. This case
prompts
p studeents to explorre the reasonss and ramifica ations of such
h
aggressive
a lia
ability manage ement, with particular atten ntion being paaid to
the administra ative challeng ges created byy such a large e swap position.
An
A important decision
d has to be made rregarding the managementt of
the swap book k in the face o of the deprecciating dollar, the decline off the
franc
f against the German m mark, and a p possible realig gnment of the e
European
E Currrency Unit. T This is a comp prehensive ca ase involving
swaps,
s debt policy,
p and forreign exchang ge exposure tthat is best ta aught
after
a students have been in ntroduced to tthese topics.
Subjects
S Covvered: Debt m management;; Foreign exchange; Francce;
International finance;
f Naturral gas
J.C. Penn
ney (B)*: Scottt P. Penney's
P assiistant treasure rer was consid dering variouss capital markkets
Mason ; William
W B. Alle
en is
ssues to finan nce store mod dernizations. This case pro ovides the
Product #:
# 286118 financing
f term
ms available to o Penney for domestic, current, and zerro
Length: 23
3p coupon
c debt. Eurodollar de ebt, and nond dollar SFr and d Yen issues
Teaching Note: 287041 1 hedged
h and swapped backk to dollar liab bilities. Also, P
Penney is
considering
c ussing interest rrate futures, o options, and o options on futtures
to hedge a forrthcoming deb bt issue.
Subjects
S Covvered: Bondss; Capital marrkets; Internattional finance e
R.J. Reyn
nolds International Reynolds
R mus st source a su ubstantial porrtion of the fin
nancing of its

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Financing
g *: W. Carl Ke
ester ; Nabisco
N acquisition in offsh
hore bond ma arkets. Morgaan Guaranty h
has
William B. Allen proposed
p a yeen/dollar duall currency Eurobond that ccould be hedg
ged
Product #:
# 287057 in
nto dollars. This structure is compared to Eurodollarr Bonds, Eurooyen
Length: 14
4p Bonds,
B and Euroyen Bondss swapped orr hedged into dollars.
Teaching Note: 290010 0 Subjects
S Cov vered: Bondss; Capital marrkets; Currenccy; Hedging;
International finance
f
Chapter 15:
1 Internatioonal
Portfolio Investment Abstractt
Merrill Lyn
nch's Acquisittion of In the Spring of o 1998, Merrrill Lynch face ed an array off challenges a and
Mercury Asset
A Manageement: opportunities
o related to its global asset m managementt business. Th he
Andre F. Perold;
P Imran
n Ahmed; firm
f had recen ntly complete d its $5.3 billiion cash acqu uisition of U.K K.-
Randy Alttschuler based
b Mercurry Asset Mana agement. Me errill Lynch now would man nage
Product #:
# 299005 assets
a across s the globe wi th a balanced d mix of retail/institutional
Length: 299p accounts,
a fixe
ed income/equ uity assets, and domestic/international
exposures.
e Prrovides an op pportunity to a
analyze the fuuture of the assset
management
m industry fromm a global perrspective, with h emphasis on the
changes
c occuurring in Europ pe as it movees to a commo on currency, a and
on
o Japan, whiich is undergo oing a major reorganizatio on of its financcial
system.
s Learn ning Objectiv ve: A vehicle for discussinng 1) issues such
as
a the phenom menon of hom me bias: Will iinvestors diveersify more
broadly
b than ata present, an nd what does this mean forr the productss and
strategies
s of in
nvestment firm ms?, and 2) issues relating g to branding g,
distribution,
d an
nd production n in a world wwhere assets a are increasing gly
coming
c underr the control o of individuals tthrough the g
growth of self--
directed
d retire
ement plans.
Innocentss Abroad: Currencies Sandra
S Meyerr, founder of tthe investmen nt firm CapGlobal Advisorss,
and Intern
national Stockk LLC,
L has to prresent the ca se for interna ational diversification to a
Returns*: Mihir A. Desaai; skeptical
s clien
nt who is resp ponsible for a state pension n fund. Foreign
Kathleen Luchs; Mark F. Veblen equities
e have underperform med U.S. equities for some e time, and th he
Product #:
# 204141 client
c wonders s if the pensioon fund is los ing out on pootential returnss by
Length: 21p in
nvesting in international sttock markets that are unde erperforming tthe
Teaching Note: 206012 2 U.S.
U market. Meyer plans to use data o on international stock returrns
To analyzze this case, students
s and
a currency movements tto convince her client that international
need the case
c coursewware diversification
d does add va alue to the pennsion fund’s eequity portfolio
(HBS 2044-705) and
a to demon nstrate how cu urrency move ements influen nce internatio onal
stock
s returns.
Learning
L Objjective: To de emonstrate how international diversifica ation
affects
a the riskk and return ccharacteristiccs of a stock p portfolio
PART V FINANCIAL
F MANAGEMEN
M NT OF THE MULTINATIO
M ONAL FIRM
Chapter 16:
1 Foreign Direct
D
Investmeent and Cross s-Border
Acquisitions Abstractt
FDI in China: Yasheng g Huang China
C is one ofo the most po opular investmment destinattions in the w world.
Product #:
# 701061 Throughout
T much
m of the 19
990s, China a accounted forr 50% of foreig gn
Length: 288p direct
d investm ment (FDI) goi ng into developing countries and betwe een
Teaching Note: 702048 8 1994
1 and 199 97, China wass the second llargest recipie ent of FDI in tthe
world,
w after the United Stattes. The recent agreementts between China
on
o the one ha and and the U United States and the European Union o on the
other
o hand ov ver China's acccession into the World Tra ade Organiza ation
(WTO) may in ncrease China a's already im
mpressive FDI inflows
significantly.
s This
T case exa amines the drrivers of FDI flows into Chin na

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 and
a the lesson ns for other d developing co ountries.
Learning
L Objjective: To te each studentss to think abou ut FDI as a
competitive
c prrocess.
Financing
g the Mozal Project: Opens
O in June e 1997 with a team from th he Internation nal Finance C Corp.
Benjamin C. Esty; Fuaad A. (IFC) recomm mending that th he board app prove a $120 million investtment
Qureshi in
n a $1.4 billio on aluminum ssmelter in Mo ozambique kn nown as the M Mozal
Product #:
# 200005 project.
p Four factors
f make the investme ent controverssial: it would b be
Length: 20
0p the IFC's large est investmen nt in the world
d; total investment was alm most
Teaching Note: 2000255 the size of Mo ozambique's g gross domesttic project (GD DP); Mozamb bique
had
h only recently emerged d from 20 yearrs of civil warr; and several key
contractual
c isssues were sti ll undecided. Because com mmercial bankers
have
h refused to finance the e deal unless the IFC is invvolved, the
sponsors
s have e requested I FC participattion. Whetherr the IFC's boa ard
will
w agree thatt it is the rightt time and the e right place to o make such a
la
arge investme ent remains tto be seen.
Learning
L Objjective: Desig gned for peop ple with an intterest in capittal
in
nvestments in n emerging m markets. Prese ents an extreme example of
political
p risk inn a developing g country and d shows how project sponssors
attempt
a to mittigate the riskks through pro oject selection n, structuring, and
in
nsurance. Ne ext, it highligh ts the contrib
butions of multilateral
development
d n general, and
institutions in d the IFC in pa articular, in
financing
f infraastructure pro ojects. In partiicular, it analyyzes IFC's
in
nvolvement in n appraising, structuring, m monitoring, an nd financing
in
nfrastructure projects, and d shows how tthese activitie es create valu ue by
resolving
r costtly market imp perfections including inform mation, distress,
agency,
a and transaction co osts. Also exp plores the IFC C's performance in
each
e of its role es.
Petrolera Zuata, Petrozzuata Petrozuata
P is a proposed $ $2.5 billion oil-field develop pment projectt in
enjamin C. Es
C.A. * : Be sty; Venezuela.
V Thhe project spo onsors, Cono oco, Inc. and P PDVSA
Mathew Mateo
M Millett (Venezuela's national oil co ompany), are e planning to m meet with varrious
Product #:
# 299012 development
d agencies and d rating agenccies regarding g the propose ed
Length: 222p financial
f struc cture. The spo onsors hope tto raise a porttion of the $1.5
Teaching Note: 299013 3 billion
b debt in the capital m markets, which h will require a an investmen nt-
grade
g rating. TheT key quesstions are whe ether the projject will achieve an
in
nvestment-grrade rating an nd, if not, how
w to finance th he project.
Learning
L Objjective: Desccribes what tu urned out to b be an extreme ely
well-crafted
w fin
nancial transa action. Addreesses question ns like why usse
project
p finance e, how to allo ocate project rrisk, and how w to value projject
in
nvestments. Also A addresse es the ratingss process and d, in particular, the
possibility
p thatt a deal can p pierce the sovvereign ceiling g (to receive a
higher
h rating than
t the counntry rating in w
which it is loca ated). Finally,,
shows
s how the capital marrkets are beco oming an imp portant source e of
funds
f for deve elopment projjects.
Note on U.S.
U Taxation of Identifies seve eral of the prooblems and p policy choices associated w with
Foreign-S
Source Corporate taxing foreign-source incom me. Exampless are given off the practicall
Income : Henry
H B. Reiling after-tax
a effec cts of the majo or alternativess. Foreign taxx credit and "ttax
Product #:
# 207085 haven"
h based business acttivities receive e special atteention. Provides an
Length: 7p understanding
u g of the basicc problems an nd principles a associated with
U.S.
U taxation of foreign-sou urce corporatte income.
Subjects
S Cov vered: Accou unting procedu ures; Foreign n investment; Tax
accounting;
a Taxation

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Background and Agree ements A brief history y of foreign dirrect investmeent (FDI) is pu
ut forth, with
on Foreign Direct Invesstment: emphasis
e on conflicts,
c accoompanied by developments in the legal
Louis T. Wells
W Jr.; Cou
urtenay framework
f go
overning FDI, as well as intternational ag greements and
Sprague nonbinding
n prrinciples formu ulated to resoolve disputes brought in byy FDI.
Product #:
# 796148 Propositions
P provide
p a con
ntext from which core issue es may be
Length: 133p discussed
d by the students.
Learning
L Objjective: To exxplore the rea asons for inte
ernational con nflict
over
o foreign direct
d investm ent and the o opportunities ffor internation
nal
agreements
a to
o manage the ese conflicts.
Note on Foreign
F Directt Between
B 19855 and 1990, th he global ecoonomy witnesssed an
Investmennt: Debora Sp
par; Julia unprecedente
u ed surge in floows of foreign n direct investtment (FDI). TThis
Kou sudden
s increaase called bacck into promin nence the ran nge of questioons
Product #:
# 795031 that have long g surrounded FDI. What ca auses firms too expand or
Length: 13
3p contract
c their purchase of fforeign assetss? How do pa atterns of
in
nvestment afffect trade and d developmen nt? What is th
he impact of F FDI
on
o host countries? This no te explores th hese question ns in some de etail
and
a includes data d summarrizing recent trends in FDI flows.
Learning
L Objjective: To prresent backgrround informa ation on the
causes
c and efffects of FDI.
Note on Political
P Risk Analysis
A Describes
D the
e emergence a and subsequent decline off the political risk
Debora Spar; Heidi De eringer; analysis
a indusstry. Discusse es what politiccal risk means for multinattional
Jennifer Wang
W firms
f and various ways in w which firms ha ave tried to analyze and
Product #:
# 798022 grapple
g with thhese risks.
Length: 122p Learning
L Objjective: Serve es as backgro ound for discussions on fo oreign
direct
d investmment, risk man nagement, and the politics of internation nal
business.
b

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The Refin
nancing of Sha anghai Shanghai
S Gen neral Motors ((SGM) was fo ounded in 199 97 as a 50/500 joint
General Motors
M (A): Mihir A. venture
v betwe een General M Motors and S Shanghai Auto omotive Indusstry
Desai; Maark F. Veblen Corporation
C (S
SAIC), a loca l firm owned by the Shang ghai Municipa al
Product #:
# 204031 Government.
G The partnerss contributed equal amoun nts of equity aand a
Length: 21p consortium
c off banks provid ded debt finan ncing for the nnew enterprisse.
Teaching Note: 206034 4 SGM
S built an automotive p plant and bega an selling carrs in 1999. Itss
operations
o weere profitable from the start rt and by 2000 0 SGM had gained
a 5% share off the Chinese e automobile m market. SGM M’s initial prod
ducts
were
w a luxury sedan and a minivan, sold d under the BBuick model n name.
These
T automo obiles had pro oved popular with business and govern nment
customers
c and SGM plann ned to introduce a smaller, more afforda able
family
f car in 2001.
2
SGM’s
S origina al capitalizatio
on occurred a after the Asiann financial crissis
making
m it challlenging to co onvince bankss to invest in a new Chinesse
enterprise.
e By y late 2000, hhowever, SGM M had a trackk record of
profitable
p operations and S SGM faced ne ew strategic isssues with Ch hina’s
forthcoming
f entry into the W WTO. The C CFO of SGM, Mark Newma an,
sought
s to refinnance SGM’ss long-term de ebt and its revvolving credit
facility.
f In parrticular, Newm man wanted to increase the proportion o of
RMB-denomin
R nated debt an nd to secure m more favorable terms from m
SGM’s
S lenderrs. In develop ping a propossal for refinanccing SGM,
Newman
N had to consider sseveral issuess: how China a’s entry into tthe
WTO
W in 2001 would affect SGM’s opera ations and thee partnership that
governed
g SGM M; how to con nstruct a neww financial straategy with thee
appropriate
a prriorities; and hhow subsidiary financings should balan nce
subsidiary
s and d parental con ncerns.
Learning
L Objjective: To un nderstand the e core elemen nts of financin
ng a
multinational
m subsidiary
s ovverseas, from its initial form
mation to
subsequent
s reefinancing de cisions. in its early growth. Also, to lookk at
the elements of foreign govvernments' atttempts to reg gulate capital
markets,
m the dynamic
d betw
ween domesticc and international banks iin
competing
c forr lending oppo ortunities to m
multinational ssubsidiaries, aand
how
h subsidiarry manageme ent can achievve the most d desirable fund ding
terms.
Chapter 17:
1 Internatioonal
Capital Structure and
d the
Cost of Capital
C Abstractt
The Loewwen Group, Inc.: Stuart A publicly-tradded funeral ho ome and cem metery consolidator faces
C. Gilson ; Jose Camacho im
mminent finan ncial distress . The compan ny has aggresssively grown n
Product #:
# 201062 through use of o debt. Restru ucturing the ddebt is potentially very costtly to
Length: 24
4p creditors,
c shareholders, su uppliers, and oother corporaate stakeholde ers.
Cross-border
C and accountiing issues pottentially comp plicate the
restructuring.
r
Learning
L osts of debt, ffinancial distress,
Objjective: To ill ustrate the co
basic
b restructuuring options , and determiinants of capiital structure.
New Worlld Developme ent Co. New
N World De evelopment C Co. Ltd. (NWD D) was a leadding conglome erate
Ltd.: Diversify or Focus
s?: Su based
b in Hong g Kong. Afterr more than 20 0 years of operations, the
Han Chan n; Ko Wang; Mary
M Ho group
g had exppanded its co ore businesse es to include p
property,
Product #:
# HKU166 in
nfrastructure,, services, an d telecommunications. Fro om late 1997 to
Length: 166p June
J 2001, the stock price performance e of the compa any had been n
Teaching Note: HKU16 67 abysmal.
a Its efforts
e at asse
et disposals too reduce gearring, while ma aking

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 additional
a inveestments in n new businesse es, confused investors.
Security
S analyysts also blam med the comp pany for not kkeeping its pro omise
to focus on its s core businesss of propertyy.
Learning
L Objjective: Requ uires studentss to conduct a an objective
assessment
a of
o NWD on bo oth a divisionaal and a consolidated basiss. It
provides
p suffic
cient informattion for them to compute th he divisional ccost
of
o capital usin ng the capital asset pricing model (CAPM) and to con nduct
a simple Econ nomic Value A Added (EVA) analysis.
Novo Induustri A/S--198
81: W. This
T small butt rapidly grow wing Danish biochemical co ompany mustt
Carl Keste
er choose
c among several fina ancing opporttunities that in nclude a
Product #:
# 286084 convertible
c Eu
urobond, a rig ghts offering in Denmark and an issue o of
Length: 12
2p new
n common shares in the e United State es. The case involves a broad
Teaching Note: 290037 7 range
r of issuees concerning g the ability off a multinationnal company to
lo
ower its cost of capital by ttapping differrent capital markets worldw wide.
Subjects
S Covvered: Capita al costs; Capittal markets; F Financing;
International finance
f
Globalizin
ng the Cost off Capital AES
A is a global power firm with operatio ons in 30 countries and on five
and Capittal Budgeting at AES: continents.
c The company operates in fo our business segments:
Mihir Desai, Doug Schillinger utilities,
u contra act generation n, competitivee supply, and d growth
Product #:
# 204109 distribution.
d After
A going pu ublic in 1991, AES grew rapidly with mu uch of
Length: 233p itts growth com ming from its iinternational e expansion. T The global
Teaching Note: 206080 0 economic
e dowwnturn that be egan in late 22000 had a se evere inpact o on
AES.
A The com mpany was h hit by currencyy devaluations in South
America,
A loweer energy pricces, and chan nges in the reg gulatory regimmes
for
f energy in some s countriees. AES’s de eteriorating peerformance le ed to
a steep declin ne in its stock price and the e company’s market
capitalization
c fell almost 95 5% over a two o year period..
The
T financial crisis c led AES S to create a new planning g group, charg ged
with
w valuing th he company’ss assets and d developing a methodologyy for
calculating
c thee cost of capi tal for AES’s diverse busin nesses around the
world.
w In the past, AES ha ad used a 12% % cost of capital to evaluatte all
projects
p worlddwide. Rob V Venerus, the d director of thee new planning
group,
g aims too improve on this approach h by developiing a methodo ology
that incorpora ates country riisk and other risks specificc to a project into
the cost of cap pital for each project. Ven nerus has to d decide if this
approach,
a dessigned to provvide a more a accurate finan ncial assessm ment
of
o the compan ny’s diverse in nternational b businesses, w would actuallyy
im
mprove AES’s financial de ecision making.
The
T case pres sents a metho odology for de etermining a project’s weig ghted
average
a cost of capital (WA ACC) thath iss based on a d domestic CAP PM
familier
f to most students, a and then provvides adjustments for coun ntry
and
a project-sp pecific risks. Students can n use the metthodology to
calculate
c the cost
c of capita
al for several oof AES’s proje ects in differe
ent
parts
p of the world. In the p process, stude ents are force ed to considerr the
economic
e justtification for th
he widely varyying discountt rates that the e
methodology
m generates forr various AES S projects aroound the world d, the
use
u of sovereign spreads tto measure co ountry risk, an nd the approp priate
way
w to do valu uation in eme erging marketts.
Learning
L Objjective: To exxamine counttry risk, cost o of capital,
valuation,
v eme erging marke ets, and capita al budgeting.
Chapter 18:
1 Internatio
onal

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Capital Budgeting
B Abstractt
Note on Adjusted
A Pressent Describes
D thee "adjusted pre resent value" (APV) approa ach to discounted
Value*: Tiimothy A. Lue
ehrman cash
c flow ana alysis. Much o of the note is d devoted to a critical
Product #:
# 293092 comparison
c off APV and an n approach ba ased on the w weighted averrage
Length: 7p cost
c of capitall (WACC). Arg gues that APV V is usually, iif not always,
Teaching Note: 295113 3 simpler,
s more accurate, an nd/or more infformative than n using the
WACC.
W Desig gned to be disstributed in co onjunction witth a case on
valuation
v and capital budge eting. Assumes students a are familiar wiith
the WACC bu ut not with APV V.
Subjects
S Cov vered: Capita al budgeting; Capital costs; Present valu ue;
Valuation
V
Cross-Border Valuation
n*: Provides
P a rev view of valuattion technique es used to asssess cross-b border
Kenneth A.
A Froot; W. Carl
C in
nvestments. Discusses
D thee discounting of free cash flows with a
Kester weighted
w averrage cost of ccapital and the e use of adjussted present
Product #:
# 295100 value.
v Special concerns su uch as foreign n-exchange risk, country risks,
Length: 21p and
a internatio onal diversifica ation are also o discussed. UUnlike Note on
Cross-Border
C Valuation, th
his note conta ains no discusssion of valuin ng
real
r options. A rewritten ve ersion of an ea arlier note.
Subjects
S Cov vered: Capita al costs; Foreign exchange e; Foreign
exchange
e rate es; Internation nal finance; P Present value; Valuation
Ocean Drrilling, Inc.*: Thomas
T R. Management
M must choose e between two o mutually excclusive bids to o
Piper build
b two drilling rigs. Both bids involve attractive exp port credit
Product #:
# 282050 financing
f deno ominated in fo foreign curren ncies.
Length: 15
5p Subjects
S Cov vered: Bids; C Currency; Forreign exchang ge; Internatio
onal
Teaching Note: 293007 7 finance;
f Petro oleum
Groupe Ariel
A S.A.: Parrity Groupe
G Ariel S.A.
S is evalua ating a propossed cost-saving investmen nt by
Conditions and Cross-Border itts Mexican su ubsidiary. The e case introdu uces techniqu ues of discoun nted
Valuation: Timothy A. cash
c flow valu uation analysiis in a multicu urrency setting. Can be used to
Luehrman n; James Quin nn teach basic in nternational pa arity conditionns as they rellate to the vallue of
Product #:
# 4194 operating
o cash flows.
Length: 8p Learning
L Objjective: Euro pe and Mexicco; Foreign exxchange ratess;
Teaching Note: 4195 International parity
p relation
nships; Printin ng and imagin ning; Project
evaluation;
e Va aluation
Valuaing a Cross-Bordder LBO: Two
T of the larrgest firms in global private e equity, Apaxx Partners an nd
Bidding on the Yell Gro
oup: Mihir Hicks,
H Muse, Tate & Furst have joined fforces to bid ffor Yell, a diviision
A. Desai; of
o British Tele ecom (BT). Y Yell published business dire ectories in twoo
Paolo Nottarnicola; Marrk F. countries:
c BTT Yellow Page es in the Unite ed Kingdom a and Yellow Bo ooks
Veblen USA
U in the Un nited States. BT anticipate ed raising as much as £2 b billion
Product #:
# 204033 from
f the sale of the Yell asssets, and thiss large transa action would b be a
Length: 177p significant
s eve ent in the still--developing E European privvate equity ma arket.
Teaching Note: 206038 8 The
T private eq quity consorti um must valu ue Yell and de ecide how mu uch to
bid
b for the bus siness.
The
T key issue e in the case iis how to valu ue an enterpriise with
businesses
b in different cou untries with ca ash flows in ddifferent
currencies.
c The
T proposed LBO of Yell a also raises the question off the
appropriate
a diiscounted cassh flow metho od to use for a business wiith a
highly
h leverag ged and chang ging capital sstructure, and poses the
problem
p of ho ow to build fina ancial modelss for two veryy different
businesses.
b
Yell’s
Y U.K. and U.S. busine esses have diifferent strate egic characterristics
and
a different growthg rates. The private equity firms h have to assesss

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 management’
m s projections , decide whatt adjustmentss are necessa ary,
and
a build cash h flow modelss for each bussiness, as in purely domesstic
valuations.
v Thhe analysis thhen has to bee extended, ass this is a crooss-
border
b deal, and
a the separrate cash flow ws foro the twoo businesses have
to be combine ed to value th e total enterp
prise. This seetting raises thhe
problem
p of hoow to incorporrate currency differences in nto the valuattion.
The
T valuation of Yell prese ents some of tthe fundamen ntal issues thaat
arise
a in all crooss-border traansactions wh hen businesse es operating iin
different
d curreencies have to o be valued inn combination n.
Learning
L Objjective: To un nderstand thee core elemen nts of cross-bborder
valuation
v in th
he setting of a leveraged buyout. In the process, stud dents
must
m employ exchange
e rattes, decide ammong betas, a and translate
values
v from tw wo mature, de eveloped eco onomies to arrrive at a bid.
Students
S mus st conduct thiss valuation in a private equuity setting with
the idiosyncra asies of a leveeraged buyou ut, including th
he economiess of
carried
c interes st.
Chapter 19:
1 Multinatio
onal
Cash Mannagement Abstractt
N/A

Chapter 20:
2 Internatioonal
Trade Fin
nance Abstractt
The U.S. Export-Imporrt Bank Describes
D the
e dilemma Ma artin Kamarckk faced as pre
esident of the
and the Three Gorges Dam (A): Export-Import
E t Bank in wheether to provid
de U.S. companies financin ng for
George C.
C Lodge Catee Reavis China's
C Threee Gorges Dam m project.
Product #:
# 900017 Subjects
S Cov vered: Bankin ng; Business government relations; Chiina;
Length: 10
0p Economic
E Government agencies; Govvernment policcy;
infrrastructure; G
Teaching Note: 901053 3 Politics;
P Project finance
vailable
B case av

Chapter 21:
2 Internatioonal Tax
Environmment and Traansfer Abstractt
Pricing
Note on U.S.
U Taxation of Identifies seve eral of the pro
oblems and p policy choices associated w with
Foreign-S
Source Corporate taxing foreign-source incom me. Exampless are given off the practicall after-
Income: Henry
H B. Reiling tax effects of the
t major alte ernatives. Forreign tax cred dit and "tax ha
aven"
Product #:
# 207085 based
b busines ss activities re
eceive specia al attention. P
Provides an
Length: 7p understanding
u g of the basicc problems an nd principles aassociated with U.S.
taxation of forreign-source ccorporate inco ome.
Subjects
S Covvered: Accou unting procedu ures; Foreign n investment; Tax
accounting;
a Taxation
Corporate
e Inversions: Stanley In February 20 002, Stanley Works, a lead ding U.S. toolmaker, anno ounced
Works and the Lure of Tax that it was mo oving its legal domicile to BBermuda. The e company ciited its
Havens: Mihir
M A. Desai; James in
ncreasingly global
g businesss and its neeed to remain ccompetitive ass
R. Hines, Jr.; Mark F. Veblen
V reasons
r for th
he move. In p particular, Sta
anley claimed that its effecttive
Product #:
# 203008 worldwide
w taxx rate would d drop as much as 9% if it relocated to Be ermuda.
Length: 16
6p The
T stock market reacted ffavorably to S Stanley’s anno ouncement and its
Teaching Note: 206013 3 stock
s price rosse significanttly. A few mo onths later, whhen Stanley
apparently
a backed down frrom its plan, itts stock price e plunged. On ne of
Stanley’s
S U.S. competitors , American H Handyworks, Inc. attempts to

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 understand
u ho
ow the propossed change in n Stanley’s le
egal domicile could
have
h such an impact on itss market capittalization. Am merican Hand dyworks
tax planner ha as to quantifyy the gains Staanley would rrealize if it relo
ocated
overseas,
o andd determine iff his own firm should pursu ue such a stra ategy.
Learning
L Objjective: To faamiliarizes stuudents with th
he ways in wh hich the
U.S.
U tax code alters manag gers' incentivees by examinning the U.S. ttax
treatment of fo oreign income e. To demonsstrate the fund damental diffference
between
b the manner
m in wh ich the U.S. ttaxes its comppanies--world dwide
in
ncome taxatio on--and how many other n nations tax theeir companiess--
territorial taxation--and tp pprovide a conttext in which to understand d the
foreign
f tax creedit system. SStudents to exxplain the stoock market rea action
to an inversion n announcem ment through d detailed exam
mination of fin nancial
statements.
s Aggregating
A th
he separate ccomponents o of value turns up
short,
s and students are forcced to specullate about wh here Stanley ccan
generate
g more
e value.

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.