FINANCIAL MANAGEMENT
,Category 1 Dominican Rep.
Antigua & Barbuda Egypt
Aruba Ethiopia
Bahamas Georgia
Bahrain Guyana
Barbados Iran
Belize Iraq
Djibouti Kazakhstan
Dominica Kyrgyz Rep.
East Timor Honduras
Ecuador Laos
El Salvador Lebanon
Eritrea Liberia
Grenada Macedonia
Hong Kong, PRC Malawi
Jordan Mauritania
Maldives Myanmar
Marshall Islands Nicaragua
Micronesia Nigeria
Oman Russia
Palau Rwanda
Panama Sao TOJEfo &. "f
Qatar Principe
Saudi Arabia Solomon Islands
St. Kitts & N ervis Suriname
St. Lucia Syria
St. Vincent & the Tajikistan
Grenadines Tonga
Turkmenistan Trinidad & Tobago
United Arab Ukraine North Atlantic Ocean
Emirates Uzbekistan
Venezuela Vanatu
Vietnam
Category 2 Yemen
Benin Zimbabwe
Bosnia &
Herzegovina Category 6
Bulgaria Albania
Burkina Faso Afghanistan
Cameroon Algeria
Cape Verde Argentina
C. African Rep. Annenia
Chad Brazil
Comoros Burundi
Congo Cambodia
Cote d'Ivoire Colombia
Denmark Gambia
Equatorial Guinea Guatemala
Estonia Ghana
Gabon Haiti
Guinea-Bissau Hungary
Latvia Iceland
Lithuania India
Mali Indonesia
Niger Jamaica
Senegal Kenya
Togo Madagascar
Malaysia
Category 3 Mexico
Bhutan Moldova
Botswana Mongolia
Brunei Mozambique
Fiji Pakistan
Kiribati Papua New Guinea
Kuwait Paraguay South Pacific Ocean
Lesotho Peru
LibyanAJ Philippines
Morocco Romania
Namibia Serbia
Nepal Sierra Leone
Samoa Singapore
Swaziland South Africa
Sri Lanka
Category 4 Sudan
Austria Tanzania
Belgium Thailand
Cyprus Tunisia
Finland Turkey
France Uruguay
Germany Uganda
Greece Zambia
Ireland
Italy Category 7
Luxembourg Australia
Malta Canada
Netherlands Chile
Portugal Congo, DR
Slovakia Czech Rep.
Slovenia Israel
Spain Japan SOURCE: Annual Report on Exchange Arrangements and This map is not to scale
Korea, Rep. Exchange Restrictions, IMF, 2009.
Category 5 Mauritius
Angola New Zealand
Azerbaijan Norway
Bangladesh Poland
Belarus Somalia
Bolivia Sweden
China, PR Switzerland
Costa Rica United Kingdom
Croatia United States
, l
North Pacific Ocean
Indian Ocean
,
,
,The McGraw-HHUlrwin Series in Finance, Insurance, and Real Estate
Stephen A. Ross
Franco Modigliani Professor of Finance and Economics
Sloan School of Management
Massachusetts Institute of Technology
Consulting Editor
Grinblatt and Titman Hirt and Block Kuemmerle
FINANCIAL Case Studies in International
Financial Markets and Fundamentals of Investment
MANAGEMENT Management Entrepreneurship: Managing
Corporate Strategy
Adair Tenth Edition and Financing Ventures in the
Second Edition
Excel Applications for Global Economy
Higgins Hirschey and Nofsinger
Corporate Finance First Edition
Analysis for Financial Investments: Analysis and
First Edition Behavior Robin
Management
Block, Hirt, and Danielsen Second Edition International Corporate
Ninth Edition
Foundations of Financial Finance
Kellison Jordan, Miller, and Dolvin
Management First Edition
Theory of Interest Fundamentals of Investments:
Fourteenth Edition Valuation and Management
Third Edition REAL ESTATE
Brealey, Myers, and Allen Sixth Edition
Kester, Ruback, and Tufano Brueggeman and Fisher
Principles of Corporate Stewart, Piros, and Heisler
Case Problems in Finance Real Estate Finance and
Finance Running Money: Professional
Twelfth Edition Investments
Tenth Edition Portfolio Management
Ross, Westerfield, and Jaffe Fourteenth Edition
Brealey, Myers, and Allen First Edition
Corporate Finance Ling and Archer
Principles of Corporate Sundaram and Das
Ninth Edition Real Estate Principles: A Value
Finance, Concise Derivatives: Principles and
Second Edition Ross, Westerfield, Jaffe, and Approach
Practice
Jordan Third Edition
Brealey, Myers, and Marcus First Edition
Corporate Finance: Core
Fundamentals of Corporate
Principles and Applications FINANCIAL FINANCIAL PLANNING
Finance
Third Edition INSTITUTIONS AND INSURANCE
Sixth Edition
Ross, Westerfield, and Jordan AND MARKETS Allen, Melone, Rosenbloom, and
Brooks
Essentials of Corporate
Fin Game Online 5.0 Rose and Hudgins Mahoney
Finance Retirement Plans: 401(k)
Bruner Seventh Edition Bank Management and
Financial Services s, IRAs, and Other Deferred
Case Studies in Finance:
Ross, Westerfield, and Jordan Eighth Edition Compensation Approaches
Managing for Corporate Value
Fundamentals of Corporate Tenth Edition
Creation Rose and Marquis
Finance
Sixth Edition Financial Institutions and Altfest
Ninth Edition Personal Financial Planning
Chew Markets
Shefrin Eleventh Edition First Edition
The New Corporate Finance:
Behavioral Corporate Finance:
Where Theory Meets Practice Saunders and Cornett Harrington and Niehaus
Decisions that Create Value
Third Edition Financial Institutions Risk Management and
First Edition
Cornett, Adair, and Nofsinger Management: A Risk Insurance
White Management Approach Second Edition
Finance: Applications and
Financial Analysis with an Seventh Edition Kapoor, Dlabay, and Hughes
Theory
Electronic Calculator Focus on Personal Finance: An
First Edition Saunders and Cornett
Sixth Edition Active Approach to Help You
Cornett, Adair, and Nofsinger Financial Markets and
Institutions Develop Successful Financial
Finance: M Book
INVESTMENTS Fourth Edition Skills
First Edition
Third Edition
DeMello Bodie, Kane, and Marcus INTERNATIONAL
Essentials of Investments Kapoor, Dlabay, and Hughes
Cases in Finance FINANCE
Eighth Edition Personal Finance
Second Edition
Eun and Resnick Tenth Edition
Grinblatt (editor) Bodie, Kane, and Marcus
Investments International Financial
Stephen A. Ross, Mentor:
Ninth Edition Management
Influence through Generations
Sixth Edition
, ChealS. Eun
Georgia Institute of Technology
Bruce G. Resnick
Wake Forest University
~ McGraw-Hili
_Irwin
, The McGraw·HiII Companies
_ McGraw-Hili
_Irwin
INTERNATIONAL FINANCIAL MANAGEMENT, SIXTH EDITION
Published by McGraw-HilllIrwin, a business unit of The McGraw-Hill Companies,
Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright © 2012 by The
McGraw-Hill Companies, Inc. All rights reserved. Previous editions © 2009, 2007 and
2004. No part of this publication may be reproduced or distributed in any form or by any
means, or stored in a database or retrieval system, without the prior written consent of
The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other
electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to
*
customers outside the United States.
This book is printed on recycled, acid-free paper containing 10% postconsumer waste.
1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4'3 2 1
ISBN 978-0-07-803465-7
MHID 0-07-803465-5
Vice President & Editor-in-Chief: Brent Gordon
Vice President EDP/Central Publishing Services: Kimberly Meriwether David
Publisher: Douglas Reiner
Executive Editor: Michele Janicek
Editorial Coordinator: Alyssa Otterness
Marketing Manager: Dean Karampelas
Senior Project Manager: Lisa A. Bruflodt
Buyer: Kara Kudronowicz
Design Coordinator: Brenda A. Rolwes
Cover Design: Studio Montage, St. Louis, Missouri
Cover Image: PhotoDisc Imaging/ Getty Images RF
Media Project Manager: Balaji Sundararaman
Compositor: Glyph International
Typeface: 10/12.5 Times Roman
Printer: Quad/Graphics-Dubuque
Library of Congress Cataloging-in-Publication Data
Eun, Cheol S.
International financial management/Cheol S. Eun, Bruce G. Resnick.-
6th ed.
p.cm.
ISBN 978-0-07-803465-7 (alk. paper)
1. International finance. 2. International business enterprises-Finance.
3. Foreign exchange. 4. Financial institutions, International.
I. Resnick, Bruce G. II. Title.
HG3881.E655 2012
658.15'99-dc22 2011003394
www.mhhe.com
,To Elizabeth
C.S.E.
To Donna
B.G.R.
, :About the Authors
QheQl_S~+E11l1, 6r1l!;eJJ._B_~~ojGl<~
Georgia Institute of Technology Wake Forest University
Cheol S. Eun (Ph.D., NYU, 1981) is the Thomas R. Bruce G. Resnick is the Joseph M. Bryan Jr. Professor
Williams Chair and Professor of Finance at the Col- of Banking and Finance at the Schools of Business
lege of Management, Georgia Institute of Technology. of Wake Forest University in Winston-Salem, North
Before joining Georgia Tech, he taught at the Univer- Carolina. He has a D.B.A. (1979) in finance from
sity of Minnesota and the University of Maryland. He Indiana University. Additionally, he has an M.B.A.
also taught at the Wharton School of the University from the University of Colorado and a B.B.A. from the
of Pennsylvania, Korea Advanced Institute of Science University of Wisconsin at Oshkosh. Prior to coming
and Technology (KAIST), Singapolie Management to Wake Forest, he taught at Indiana University for ten
University, and the Esslingen University of Technol- years, the University of Minnesota for five years, and
ogy (Germany) as a visiting professor. He has published California State University for two years. He has also
extensively on international finance issues in such taught as a visiting professor at Bond University, Gold
major journals as the Journal of Finance, JFQA, Jour- Coast, Queensland, Australia, and at the Helsinki School
nal of Banking and Finance, Journal of International of Economics and Business Administration in Finland.
Money and Finance, Management Science, and Oxford Additionally, he served as the Indiana University resi-
Economic Papers. Also, he has served on the editorial dent director at the Center for European Studies at the
boards of the Journal of Banking and Finance, Journal University of Limburg, Maastricht, the Netherlands.
of Financial Research, Journal of International Busi- He also served as an external examiner to the Business
ness Studies, and European Financial Management. Administration Department of Singapore Polytechnic
His research is widely quoted and referenced in various and as the faculty advisor on a Wake Forest University
scholarly articles and textbooks in the United States as study trip to China and Hong Kong.
well as abroad. Dr. Resnick teaches M.B.A. courses at Wake Forest
Dr. Eun is the founding chair of the Fortis/Georgia University. He specializes in the areas of investments,
Tech Conference on International Finance. The key portfolio management, and international financial man-
objectives of the conference are to promote research on agement. Dr. Resnick's research interests include mar-
international finance and provide a forum for interactions ket efficiency studies of options and financial futures
among academics, practitioners, and regulators who are markets and empirical tests of asset pricing models. A
interested in vital current issues of international finance. major interest has been the optimal design of interna-
Dr. Eun has taught a variety of courses at the under- tionally diversified portfolios constructed to control for
graduate, graduate, and executive levels, and was the parameter uncertainty and exchange rate risk. In recent
winner of the Krowe Teaching Excellence Award at the years, he has focused on information transmission in the
University of Maryland. He also has served as a con- world money markets and yield spread comparisons of
sultant to many national and international organizations, domestic and international bonds. His research articles
including the World Bank, Apex Capital, and the Korean have been published in most of the major academic
Development Institute, advising on issues relating to journals in finance. His research is widely referenced by
capital market liberalization, global capital raising, inter- other researchers and textbook authors. He is an associ-
national investment, and exchange risk management. In ate editor for the Emerging Markets Review, Journal of
addition, he has been a frequent speaker at academic and Economics and Business, and the Journal of Multina-
professional meetings held throughout the world. tional Financial Management.
vi
,Category 1 Dominican Rep.
Antigua & Barbuda Egypt
Aruba Ethiopia
Bahamas Georgia
Bahrain Guyana
Barbados Iran
Belize Iraq
Djibouti Kazakhstan
Dominica Kyrgyz Rep.
East Timor Honduras
Ecuador Laos
El Salvador Lebanon
Eritrea Liberia
Grenada Macedonia
Hong Kong, PRC Malawi
Jordan Mauritania
Maldives Myanmar
Marshall Islands Nicaragua
Micronesia Nigeria
Oman Russia
Palau Rwanda
Panama Sao TOJEfo &. "f
Qatar Principe
Saudi Arabia Solomon Islands
St. Kitts & N ervis Suriname
St. Lucia Syria
St. Vincent & the Tajikistan
Grenadines Tonga
Turkmenistan Trinidad & Tobago
United Arab Ukraine North Atlantic Ocean
Emirates Uzbekistan
Venezuela Vanatu
Vietnam
Category 2 Yemen
Benin Zimbabwe
Bosnia &
Herzegovina Category 6
Bulgaria Albania
Burkina Faso Afghanistan
Cameroon Algeria
Cape Verde Argentina
C. African Rep. Annenia
Chad Brazil
Comoros Burundi
Congo Cambodia
Cote d'Ivoire Colombia
Denmark Gambia
Equatorial Guinea Guatemala
Estonia Ghana
Gabon Haiti
Guinea-Bissau Hungary
Latvia Iceland
Lithuania India
Mali Indonesia
Niger Jamaica
Senegal Kenya
Togo Madagascar
Malaysia
Category 3 Mexico
Bhutan Moldova
Botswana Mongolia
Brunei Mozambique
Fiji Pakistan
Kiribati Papua New Guinea
Kuwait Paraguay South Pacific Ocean
Lesotho Peru
LibyanAJ Philippines
Morocco Romania
Namibia Serbia
Nepal Sierra Leone
Samoa Singapore
Swaziland South Africa
Sri Lanka
Category 4 Sudan
Austria Tanzania
Belgium Thailand
Cyprus Tunisia
Finland Turkey
France Uruguay
Germany Uganda
Greece Zambia
Ireland
Italy Category 7
Luxembourg Australia
Malta Canada
Netherlands Chile
Portugal Congo, DR
Slovakia Czech Rep.
Slovenia Israel
Spain Japan SOURCE: Annual Report on Exchange Arrangements and This map is not to scale
Korea, Rep. Exchange Restrictions, IMF, 2009.
Category 5 Mauritius
Angola New Zealand
Azerbaijan Norway
Bangladesh Poland
Belarus Somalia
Bolivia Sweden
China, PR Switzerland
Costa Rica United Kingdom
Croatia United States
, l
North Pacific Ocean
Indian Ocean
,
,
,The McGraw-HHUlrwin Series in Finance, Insurance, and Real Estate
Stephen A. Ross
Franco Modigliani Professor of Finance and Economics
Sloan School of Management
Massachusetts Institute of Technology
Consulting Editor
Grinblatt and Titman Hirt and Block Kuemmerle
FINANCIAL Case Studies in International
Financial Markets and Fundamentals of Investment
MANAGEMENT Management Entrepreneurship: Managing
Corporate Strategy
Adair Tenth Edition and Financing Ventures in the
Second Edition
Excel Applications for Global Economy
Higgins Hirschey and Nofsinger
Corporate Finance First Edition
Analysis for Financial Investments: Analysis and
First Edition Behavior Robin
Management
Block, Hirt, and Danielsen Second Edition International Corporate
Ninth Edition
Foundations of Financial Finance
Kellison Jordan, Miller, and Dolvin
Management First Edition
Theory of Interest Fundamentals of Investments:
Fourteenth Edition Valuation and Management
Third Edition REAL ESTATE
Brealey, Myers, and Allen Sixth Edition
Kester, Ruback, and Tufano Brueggeman and Fisher
Principles of Corporate Stewart, Piros, and Heisler
Case Problems in Finance Real Estate Finance and
Finance Running Money: Professional
Twelfth Edition Investments
Tenth Edition Portfolio Management
Ross, Westerfield, and Jaffe Fourteenth Edition
Brealey, Myers, and Allen First Edition
Corporate Finance Ling and Archer
Principles of Corporate Sundaram and Das
Ninth Edition Real Estate Principles: A Value
Finance, Concise Derivatives: Principles and
Second Edition Ross, Westerfield, Jaffe, and Approach
Practice
Jordan Third Edition
Brealey, Myers, and Marcus First Edition
Corporate Finance: Core
Fundamentals of Corporate
Principles and Applications FINANCIAL FINANCIAL PLANNING
Finance
Third Edition INSTITUTIONS AND INSURANCE
Sixth Edition
Ross, Westerfield, and Jordan AND MARKETS Allen, Melone, Rosenbloom, and
Brooks
Essentials of Corporate
Fin Game Online 5.0 Rose and Hudgins Mahoney
Finance Retirement Plans: 401(k)
Bruner Seventh Edition Bank Management and
Financial Services s, IRAs, and Other Deferred
Case Studies in Finance:
Ross, Westerfield, and Jordan Eighth Edition Compensation Approaches
Managing for Corporate Value
Fundamentals of Corporate Tenth Edition
Creation Rose and Marquis
Finance
Sixth Edition Financial Institutions and Altfest
Ninth Edition Personal Financial Planning
Chew Markets
Shefrin Eleventh Edition First Edition
The New Corporate Finance:
Behavioral Corporate Finance:
Where Theory Meets Practice Saunders and Cornett Harrington and Niehaus
Decisions that Create Value
Third Edition Financial Institutions Risk Management and
First Edition
Cornett, Adair, and Nofsinger Management: A Risk Insurance
White Management Approach Second Edition
Finance: Applications and
Financial Analysis with an Seventh Edition Kapoor, Dlabay, and Hughes
Theory
Electronic Calculator Focus on Personal Finance: An
First Edition Saunders and Cornett
Sixth Edition Active Approach to Help You
Cornett, Adair, and Nofsinger Financial Markets and
Institutions Develop Successful Financial
Finance: M Book
INVESTMENTS Fourth Edition Skills
First Edition
Third Edition
DeMello Bodie, Kane, and Marcus INTERNATIONAL
Essentials of Investments Kapoor, Dlabay, and Hughes
Cases in Finance FINANCE
Eighth Edition Personal Finance
Second Edition
Eun and Resnick Tenth Edition
Grinblatt (editor) Bodie, Kane, and Marcus
Investments International Financial
Stephen A. Ross, Mentor:
Ninth Edition Management
Influence through Generations
Sixth Edition
, ChealS. Eun
Georgia Institute of Technology
Bruce G. Resnick
Wake Forest University
~ McGraw-Hili
_Irwin
, The McGraw·HiII Companies
_ McGraw-Hili
_Irwin
INTERNATIONAL FINANCIAL MANAGEMENT, SIXTH EDITION
Published by McGraw-HilllIrwin, a business unit of The McGraw-Hill Companies,
Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright © 2012 by The
McGraw-Hill Companies, Inc. All rights reserved. Previous editions © 2009, 2007 and
2004. No part of this publication may be reproduced or distributed in any form or by any
means, or stored in a database or retrieval system, without the prior written consent of
The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other
electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to
*
customers outside the United States.
This book is printed on recycled, acid-free paper containing 10% postconsumer waste.
1 2 3 4 5 6 7 8 9 0 QDB/QDB 1 0 9 8 7 6 5 4'3 2 1
ISBN 978-0-07-803465-7
MHID 0-07-803465-5
Vice President & Editor-in-Chief: Brent Gordon
Vice President EDP/Central Publishing Services: Kimberly Meriwether David
Publisher: Douglas Reiner
Executive Editor: Michele Janicek
Editorial Coordinator: Alyssa Otterness
Marketing Manager: Dean Karampelas
Senior Project Manager: Lisa A. Bruflodt
Buyer: Kara Kudronowicz
Design Coordinator: Brenda A. Rolwes
Cover Design: Studio Montage, St. Louis, Missouri
Cover Image: PhotoDisc Imaging/ Getty Images RF
Media Project Manager: Balaji Sundararaman
Compositor: Glyph International
Typeface: 10/12.5 Times Roman
Printer: Quad/Graphics-Dubuque
Library of Congress Cataloging-in-Publication Data
Eun, Cheol S.
International financial management/Cheol S. Eun, Bruce G. Resnick.-
6th ed.
p.cm.
ISBN 978-0-07-803465-7 (alk. paper)
1. International finance. 2. International business enterprises-Finance.
3. Foreign exchange. 4. Financial institutions, International.
I. Resnick, Bruce G. II. Title.
HG3881.E655 2012
658.15'99-dc22 2011003394
www.mhhe.com
,To Elizabeth
C.S.E.
To Donna
B.G.R.
, :About the Authors
QheQl_S~+E11l1, 6r1l!;eJJ._B_~~ojGl<~
Georgia Institute of Technology Wake Forest University
Cheol S. Eun (Ph.D., NYU, 1981) is the Thomas R. Bruce G. Resnick is the Joseph M. Bryan Jr. Professor
Williams Chair and Professor of Finance at the Col- of Banking and Finance at the Schools of Business
lege of Management, Georgia Institute of Technology. of Wake Forest University in Winston-Salem, North
Before joining Georgia Tech, he taught at the Univer- Carolina. He has a D.B.A. (1979) in finance from
sity of Minnesota and the University of Maryland. He Indiana University. Additionally, he has an M.B.A.
also taught at the Wharton School of the University from the University of Colorado and a B.B.A. from the
of Pennsylvania, Korea Advanced Institute of Science University of Wisconsin at Oshkosh. Prior to coming
and Technology (KAIST), Singapolie Management to Wake Forest, he taught at Indiana University for ten
University, and the Esslingen University of Technol- years, the University of Minnesota for five years, and
ogy (Germany) as a visiting professor. He has published California State University for two years. He has also
extensively on international finance issues in such taught as a visiting professor at Bond University, Gold
major journals as the Journal of Finance, JFQA, Jour- Coast, Queensland, Australia, and at the Helsinki School
nal of Banking and Finance, Journal of International of Economics and Business Administration in Finland.
Money and Finance, Management Science, and Oxford Additionally, he served as the Indiana University resi-
Economic Papers. Also, he has served on the editorial dent director at the Center for European Studies at the
boards of the Journal of Banking and Finance, Journal University of Limburg, Maastricht, the Netherlands.
of Financial Research, Journal of International Busi- He also served as an external examiner to the Business
ness Studies, and European Financial Management. Administration Department of Singapore Polytechnic
His research is widely quoted and referenced in various and as the faculty advisor on a Wake Forest University
scholarly articles and textbooks in the United States as study trip to China and Hong Kong.
well as abroad. Dr. Resnick teaches M.B.A. courses at Wake Forest
Dr. Eun is the founding chair of the Fortis/Georgia University. He specializes in the areas of investments,
Tech Conference on International Finance. The key portfolio management, and international financial man-
objectives of the conference are to promote research on agement. Dr. Resnick's research interests include mar-
international finance and provide a forum for interactions ket efficiency studies of options and financial futures
among academics, practitioners, and regulators who are markets and empirical tests of asset pricing models. A
interested in vital current issues of international finance. major interest has been the optimal design of interna-
Dr. Eun has taught a variety of courses at the under- tionally diversified portfolios constructed to control for
graduate, graduate, and executive levels, and was the parameter uncertainty and exchange rate risk. In recent
winner of the Krowe Teaching Excellence Award at the years, he has focused on information transmission in the
University of Maryland. He also has served as a con- world money markets and yield spread comparisons of
sultant to many national and international organizations, domestic and international bonds. His research articles
including the World Bank, Apex Capital, and the Korean have been published in most of the major academic
Development Institute, advising on issues relating to journals in finance. His research is widely referenced by
capital market liberalization, global capital raising, inter- other researchers and textbook authors. He is an associ-
national investment, and exchange risk management. In ate editor for the Emerging Markets Review, Journal of
addition, he has been a frequent speaker at academic and Economics and Business, and the Journal of Multina-
professional meetings held throughout the world. tional Financial Management.
vi
