By Geert Bekaert and Robert Hodrick
Our Reason for Writing this Textbook
Both of us have been teaching international financial management to undergraduates and M.B.A. students at Georgia Institute of Technology, Wake Forest University, and at other universities we have visited for two decades. During this time period, we conducted many research studies, published in major finance and statistics journals, concerning the operation of international financial markets. As one might imagine, in doing this we put together an extensive set of teaching materials which we used successfully in the classroom. As the years went by, we individually relied more on our own teaching materials and notes and less on any one of the major existing textbooks in international finance (most of which we tried at some point).
As you may be aware, the scope and content of international finance have been fast evolving due to deregulation of financial markets, product innovations, and technological advancements. As capital markets of the world are becoming more integrated, a solid understanding of international finance has become essential for astute corporate decision making. Reflecting the growing importance of international finance as a discipline, we have seen a sharp increase in the demand for experts in the area in both the corporate and academic worlds.
In writing International Financial Management, Third Edition, our goal was to provide well-organized, comprehensive, and up-to-date coverage of the topics that take advantage of our many years of teaching and research in this area. We hope the text is challenging to students. This does not mean that it lacks readability. The text discussion is written so that a self-contained treatment of each subject is presented in a userfriendly fashion. The text is intended for use at both the advanced undergraduate and M.B.A. levels.
The Underlying Philosophy
International Financial Management, Third Edition, like the first two editions, is written based on two tenets: emphasis on the basics, and emphasis on a managerial perspective.
We believe that any subject is better learned if one first is well grounded in the basics. Consequently, we initially devote several chapters to the fundamental concepts of international finance. After these are learned, the remaining material flows easily from them. We always bring the reader back, as the more advanced topics are developed, to their relationship to the fundamentals. By doing this, we believe students will be left with a framework for analysis that will serve them well when they need to apply this material in their careers in the years ahead.
A Managerial Perspective
The text presentation never loses sight that it is teaching students how to make managerial decisions. International Financial Management, Third Edition, is founded in the belief that the fundamental job of the financial manager is to maximize shareholder wealth. This belief permeates the decision-making process we present from cover to cover. To reinforce the managerial perspective, we provide numerous “real-world” stories whenever appropriate.
Changes in the Third Edition
Following are the specific key changes made to update this edition. For all chapters, examples and cases using former European Union national currencies have been revised to reflect the new common euro currency. Also, all chapter exhibits are updated with current data. There is a new chapter on corporate governance around the world.
Chapter 1: Updated review of new trends in the world economy.
Chapter 2: Extensive coverage of the Euro.
Chapter 3: Expanded coverage on the relationship between balance of payments accounting and national income accounting.
Chapter 4: Updated discussion of triangular arbitrage.
Chapter 5: More examples of international parity relationships and exchange rate forecasting.
Chapter 6: New section on the Japanese banking crisis.
Chapter 6: Updated section on bank capital adequacy reflecting the New Basle Accord.
Chapter 8: A new section on Global Registered Shares.
Chapter 8: A thorough revision of The European Stock Market section.
Chapter 10: Expanded coverage on interest rate and currency swap quotations.
Chapter 11: Updated analysis of risk-return of World Stock Markets. Revised and expanded appendices on international portfolio diversification and hedging exchange rate uncertainty.
Chapter 12: Updated real-world examples of exchange risk management practices.
Chapter 13: More discussion of exchange risk management and firm value.
Chapter 15: Updated coverage of foreign direct investment and cross-border M & As.
Chapter 16: More discussion of the effect of cross-border stock listings.
Chapter 21: New chapter on corporate governance. Comprehensive coverage of international corporate governance issues, with numerous real-world examples.