Global Corporate Finance

SIXTH EDITION

Suk Kim and Seung H. Kim

GLOBAL

CORPORATE

FINANCE

Global Corporate Finance

World Value of the Dollar

The table below, based on foreign-exchange quotations from Reuters, gives the rates of exchange for the US dollar against various currencies as of Friday,

July 9, 2004. Unless otherwise noted, all rates listed are middle rates of interbank bid and asked quotes, and are expressed in foreign currency units per one

US dollar.

Value Value Value Value Value Value

Country (Currency) 07/09 07/02 Country (Currency) 07/09 07/02 Country (Currency) 07/09 07/02

Albania (Lek) 100.850 100.300 Gambia (Dalasi) 29.7500 29.7500 (Kina) 3.1109 3.1090

Algeria (Dinar) 71.0100 71.0100 Ghana (Cedi) 9,027.5 9,025.0 Paraguay (Guarani) d 5,920.0 5,920.0

Angola (New Kwanza) 83.9911 83.7239 Gibraltar (Pound) 0.6269 0.6269 Peru (Nuevo Sol) d 3.4507 3.4686

Angola Greenland Philippines (Peso) 55.8036 55.8659

(Readj Kwanza) 83.9911 83.7239 (Danish Krone) 5.9905 6.0347 Pitcairn Island

Antigua Grenada (NZ $) 1.5200 1.5444

(East Caribbean $) 2.6700 2.6700 (East Caribbean $) 2.6700 2.6700 Poland (Zloty) o 3.6460 3.6750

Argentina (Peso) 2.9499 2.9464 Guadeloupe (Franc) 7.4330 7.4330 Puerto Rico (US $) 1.0000 1.0000

Armenia (Dram) 531.25 533.25 Guam (US $) 1.0000 1.0000 Qatar (Rial) 3.6398 3.6399

Aruba (Florin) 1.7900 1.7900 Guatemala (Quetzal) 7.8950 7.8850 Réunion, Ile de la

Australia (Dollar) 1.3835 1.4021 Guinea Bissau (Franc) 7.4330 7.4330

Azerbaijan (Manat) 4,920.0 4,915.0 (CFA Franc) 528.63 532.93 Romania (Leu) 32,943.0 32,964.0

Bahamas (Dollar) 1.0000 1.0000 Guinea Rep. (Franc) 2,055.0 2,055.0 Russia (Ruble) m, b 29.1121 29.0107

Bahrain (Dinar) 0.3770 0.3770 Guyana (Dollar) 179.000 179.000 Rwanda (Franc) 563.25 562.75

Bangladesh (Taka) 59.1500 59.2500 Halti (Gourde) 33.1070 32.5000 Saint Christopher

Barbados (Dollar) 1.9900 1.9900 Honduras Rep. (East Caribbean $) 2.6700 2.6700

Belarus (Ruble) 2,165.5 2,163.0 (Lempira) 18.2200 18.2100 Saint Helena (Pound) 0.6269 0.6269

Belize (Dollar) 1.9700 1.9700 Hong Kong (Dollar) 7.8003 7.8003 Saint Lucia

Benin (CFA Franc) 528.63 532.93 Hungary (Forint) 203.335 203.542 (East Caribbean $) 2.6700 2.6700

Bermuda (Dollar) 1.0000 1.0000 Iceland (Krona) 70.9900 72.1000 Saint Pierre (Franc) 7.4330 7.4330

Bhutan (Ngultrum) 47.6250 47.6250 India (Rupee) m 45.6204 45.7038 Saint Vincent

Bolivia Indonesia (Rupiah) 8,896.8 9,132.4 (East Caribbean $) 2.6700 2.6700

(Boliviano) f 7.9298 7.9385 Iran (Rial) o 8,656.0 8,645.0 Samoa, American

Bosnia & Herzeg. Israel (Shekel) 4.4823 4.4723 (US $) 1.0000 1.0000

(Convertible Mark) 1.5828 1.6113 Ivory Coast Samoa, Western

Botswana (Pula) 4.5403 4.5883 (CFA Franc) 528.63 532.93 (Tala) 2.8063 2.7540

Bouvet Island Jamaica (Dollar) o 60.8100 60.7200 Sã Tomé and Principe

(Krone) 6.8192 6.9052 Japan (Yen) 108.331 108.366 (Dobra) 8,700.0 8,700.0

Brazil (Real) 3.0423 3.0386 Jordan (Dinar) 0.7090 0.7090 Saudi Arabia (Riyal) 3.7509 3.7495

Brunei (Dollar) 1.7040 1.7155 Kazakhstan (Tenge) 135.300 135.850 Senegal (CFA Franc) 528.63 532.93

Bulgaria (Lev) 1.5755 1.5874 Kenya (Shilling) 79.7000 79.4500 Seychelles (Rupee) 5.1800 5.1800

Burkina Faso Kiribati Sierra Leone (Leone) 2,455.0 2,455.0

(CFA Franc) 528.63 532.93 (Australia $) 1.3836 1.4022 Singapore (Dollar) 1.7021 1.7114

Burundi (Franc) 1,075.3 1,075.5 Korea, North (Won) 2.2000 2.2000 Slovakia (Koruna) 32.1440 32.2997

Cambodia (Riel) 3,990.0 3,990.0 Korea, South (Won) 1,149.4 1,154.5 Slovenia (Tolar) 193.230 194.690

Cameroon (CFA Franc) 528.63 532.93 Kuwait (Dinar) 0.2948 0.2948 Solomon Islands

Canada (Dollar) 1.3184 1.3242 Laos, People DR (Dollar) 7.2697 7.4375

Cape Verde Isl (Kip) 7,882.0 7,882.0 Somalia (Shilling) d 2,620.0 2,620.0

(Escudo) 108.950 108.950 Latvia (Lat) 0.5341 0.5371 South Africa

Cayman Islands Lebanon (Pound) 1,509.0 1,514.0 (Rand) c 6.0864 6.1162

(Dollar) 0.8200 0.8200 Lesotho (Maloti) 6.1000 6.1510 Sri Lanka (Rupee) 102.780 102.350

Central African Rep. Liberia (US $) 1.0000 1.0000 Sudan (Dinar) c 259.540 259.540

(CFA Franc) 528.63 532.93 Libya (Dinar) 1.3233 1.3233 Sudan Rep. (Pound) 2,595.4 2,595.4

Chad (CFA Franc) 528.63 532.93 Liechtenstein Suriname (Guilder) 2,515.0 2,515.0

Chile (Peso) 634.92 630.12 (Swiss Franc) 1.2234 1.2327 Swaziland

China (Yuan) 8.2781 8.2781 Lithuania (Lita) 2.7815 2.8027 (Lilangeni) 6.1510 6.1510

Colombia (Peso) o 2,668.8 2,670.2 Macau (Pataca) 8.0066 8.0066 Sweden (Krona) 7.4074 7.4571

Comoros (Franc) 454.327 454.327 Macedonia (Denar) 49.8200 51.5400 Switzerland (Franc) 1.2235 1.2326

Congo Dem. Rep. Madagascar DR Syria (Pound) 48.5200 50.2170

(CFA Franc) 528.63 532.93 (Malagasy Franc) 9,508.0 9,305.0 Taiwan (Dollar) o 33.5345 33.5458

Congo, People Rep. Malawi (Kwacha) 108.750 108.550 Tanzania (Shilling) 1,100.0 1,107.0

(CFA Franc) 528.63 532.93 Malaysia (Ringgit) e 3.8000 3.8000 Thailand (Baht) 40.7332 40.6669

Costa Rica (Colon) 438.770 438.000 Maldives (Rufiyaa) 12.8000 12.8000 Togo, Rep.

Croatia (Kuna) 5.9379 5.9805 Mali Rep. (CFA Franc) 528.63 532.93 (CFA Franc) 528.63 532.93

Cuba (Peso) 1.0000 1.0000 Malta (Lira) 0.3437 0.3465 Tonga Islands

Cyprus (Pound) 0.4688 0.4718 Martinique (Franc) 7.4330 7.4330 (Pa’anga) 1.9608 1.9863

Czech. Republic Mauritania (Ouguiya) 254.250 254.400 Trinidad & Tobago

(Koruna) 25.3743 25.8131 Mauritius (Rupee) 28.2400 28.2100 (Dollar) 6.1500 6.1500

Denmark (Krone) 5.9916 6.0350 Mexico (Peso) 11.4903 11.4482 Tunisia (Dinar) 1.2432 1.2473

Djibouti (Franc) 175.000 175.000 Moldova (Leu) 11.8500 11.8550 Turkey (Lira) h 1,449,275.4 1,449,275.4

Dominica Mongolia (Tugrik) m 1,180.0 1,174.0 Turks & Cakos

(East Caribbean $) 2.6700 2.6700 Montserrat (US $) 1.0000 1.0000

Dominican Rep. (Peso) 43.5000 45.0940 (East Caribbean $) 2.6700 2.6700 Uganda (Shilling) 1,741.5 1,761.5

Ecuador (US $) g 1.0000 1.0000 Morocco (Dirham) 8.8756 8.9315 Ukraine (Hryvnia) 5.3183 5.3190

Egypt (Pound) 6.2364 6.2201 Mozambique (Metical) 22,650.0 22,628.5 United Arab Emir.

El Salvador Myanmar (Kyat) 6.4200 6.4200 (Dirham) 3.6730 3.6730

(Colon) d 8.7520 8.7520 Namibia (Dollar) 6.0500 6.1900 United Kingdom

Equatorial Guinea Nauru Island (Pound Sterling) 0.5378 0.5454

(CFA Franc) 528.63 532.93 (Australia $) 1.3836 1.4022 Uruguay (Peso) m 29.4118 29.5858

Estonia (Kroon) 12.6050 12.7063 Nepal (Rupee) 72.0000 72.0000 Vanuatu (Vatu) 113.220 115.000

Ethiopia (Birr) o 8.5800 8.6795 Netherlands Antilles Venezuela

European Union (Guilder) 1.7800 1.7800 (Bolivar) d 1,919.4 1,919.4

(Euro) 0.8057 0.8116 New Zealand (Dollar) 1.5200 1.5444 Vietnam (Dong) o 15,721.0 15,734.0

Faeroe Islands Nicaragua Virgin Islands

(Danish Krone) 5.9905 6.0347 (Cordoba Oro) 15.8400 15.8300 (US $) 1.0000 1.0000

Falkland Islands Nigeria (Naira) m 134.550 133.300 Yemen (Rial) a 184.520 184.520

(Pound) 0.6269 0.6269 Norway (Krone) 6.8213 6.9061 Yugoslavia

Fiji (Dollar) 1.7449 1.7715 Oman (Sul Rial) 0.3850 0.3850 (New Dinar) 58.6293 58.9989

French Guiana Pakistan (Rupee) 58.2072 58.3431 Zambia (Kwacha) 4,780.0 4,763.0

(Franc) 7.4330 7.4330 Panama (Balboa) 1.0000 1.0000 Zimbabwe (Dollar) 5,350.9 5,338.8

Gabon (CFA Franc) 528.63 532.93 Papua New Guinea

*US $ per national currency unit. a, Parallel; b, Russian Central Bank rate; c, commercial; d, free market; e, government rate; f, financial; h, floating rate as

of 2/22/01; m, market; o, official.

Source: The Wall Street Journal, July 12, 2004, p. C13.

SIXTH EDITION

GLOBAL

CORPORATE

FINANCE

text and cases

Suk H. Kim

University of Detroit Mercy

and

Seung H. Kim

St. Louis University

© 2006 by Suk H. Kim and Seung H. Kim

BLACKWELL PUBLISHING

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9600 Garsington Road, Oxford OX4 2DQ, UK

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The right of Suk H. Kim and Seung H. Kim to be identified as the Authors of this Work has been asserted in

accordance with the UK Copyright, Designs, and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any

form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK

Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher.

This edition published 2006 by Blackwell Publishing Ltd

1 2006

Library of Congress Cataloging-in-Publication Data

Kim, Suk H.

Global corporate finance : text and cases / Suk H. Kim, Seung H. Kim.—6th ed.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-1-4051-1990-0 (hardcover : alk. paper)

ISBN-10: 1-4051-1990-X (hardcover : alk. paper) 1. International business enterprises—Finance.

2. International finance. 3. International business enterprises—Finance—Case studies. I. Kim, Seung Hee.

II. Title.

HG4027.5.K557 2006

658.15¢99—dc22

2005022069

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List of Figures xii

List of Tables xv

Preface and Acknowledgments xviii

About the Authors xxvii

Part I: The Global Financial Environment 1

Chapter 1: Introduction 3

Opening Case 1: TIAA-CREF Goes Global with Corporate Governance 3

1.1 Reasons to Study International Finance 5

1.2 Company Goals and Functions of Financial Management 8

1.3 Multinational Companies and their Performance 10

1.4 Principles of Global Finance 14

1.5 Agency Theory and Corporate Governance 18

1.6 Environmental Differences 21

1.7 The Structure of this Book 23

Summary 23

Questions 24

References 24

Case Problem 1: What Is a National Company? 25

Chapter 2: Motives for World Trade and Foreign Investment 28

Opening Case 2: The Effect of Foreign Investment on Exports 28

2.1 Motives for Foreign Trade 29

2.2 Economic Integration 38

Contents

2.3 Motives for Foreign Investment 43

2.4 A Synthesis of Foreign Trade and Investment Theories 46

Summary 47

Questions 47

Problems 48

References 49

Case Problem 2: The Fruits of Free Trade Under the World Trade Organization 49

Chapter 3: The Balance of Payments 54

Opening Case 3: Opportunity Cost and Comparative Advantage 54

3.1 An Overview of the Balance of Payments 55

3.2 Balance-of-Payments Accounts 57

3.3 The Actual Balance of Payments 63

3.4 How to Reduce a Trade Deficit 70

Summary 72

Questions 72

Problems 73

References 73

Case Problem 3: USA–China Trade Relations 74

Chapter 4: The International Monetary System 78

Opening Case 4: The Euro – A Story of Change 78

4.1 A Successful Foreign-Exchange System 81

4.2 A Brief History of the International Monetary System 87

4.3 The International Monetary Fund 94

4.4 The European Monetary Union 98

4.5 Proposals for Further International Monetary Reform 102

Summary 104

Questions 105

References 105

Case Problem 4: The Mexican Peso Crisis of December 1994 106

Part II: Corporate Foreign-Exchange Risk Management 111

Chapter 5: The Foreign-Exchange Market and Parity Conditions 113

Opening Case 5: The Volume of Foreign-Exchange Trading 113

5.1 Major Participants in the Exchange Market 115

5.2 Spot Exchange Quotation: The Spot Exchange Rate 120

5.3 Forward Exchange Quotation: The Forward Exchange Rate 125

5.4 International Parity Conditions 128

5.5 Arbitrages 136

vi CONTENTS

Summary 142

Questions 142

Problems 143

References 145

Case Problem 5: The Big Mac Hamburger Standard: February 2003 146

Chapter 6: Currency Futures and Options 148

Opening Case 6: Derivatives Risks 148

6.1 The Currency Futures Market 150

6.2 The Currency Options Market 157

6.3 Futures Options 169

Summary 170

Questions 171

Problems 171

References 173

Case Problem 6: Merck’s Use of Currency Options 174

Chapter 7: Financial Swaps 177

Opening Case 7: Why have Gillette and GE Chosen a Higher Cost of Funding? 177

7.1 The Emergence of the Swap Market 179

7.2 Plain Vanilla Swaps 183

7.3 Motivations for Swaps 187

Summary 191

Questions 192

Problems 192

References 193

Case Problem 7: Regulations of Derivatives Markets 193

Chapter 8: Exchange Rate Forecasting 196

Opening Case 8: Mundell Wins Nobel Prize in Economics 196

8.1 Measuring Exchange Rate Changes 197

8.2 The Forecasting Needs of the Multinational Company 199

8.3 Forecasting Floating Exchange Rates 201

8.4 Forecasting Fixed Exchange Rates 210

Summary 216

Questions 216

Problems 217

References 218

Case Problem 8: General Motors Operations in Mexico, and the Peso Crisis 218

Chapter 9: Managing Transaction Exposure and Economic Exposure 221

Opening Case 9: Avon’s Actions to Protect Against Volatile Currencies 221

9.1 The Basic Nature of Foreign-Exchange Exposures 222

CONTENTS vii

9.2 Transaction Exposure Management 226

9.3 Economic Exposure Management 233

9.4 Currency Exposure Management Practices 235

Summary 238

Questions 238

Problems 239

References 241

Case Problem 9: Western Mining’s Economic Exposure Management 241

Chapter 10: Translation Exposure Management 243

Opening Case 10: Main Features of Accounting Exposure 243

10.1 Translation Rules 244

10.2 FASBs 8 and 52 247

10.3 Hedging Translation Exposure 251

Summary 252

Questions 253

Problems 254

References 256

Case Problem 10: Dell Mercosur 256

Part III: The Global Financing Strategy 261

Chapter 11: International Financial Markets 263

Opening Case 11: Foreign Investors Load Up with Asia’s Shares 263

11.1 Eurocurrency Markets 264

11.2 The Eurocurrency Interbank Market 269

11.3 The Asian Currency Market 274

11.4 The International Bond Market 276

11.5 The International Equity Market 281

11.6 Long-Term Capital Flows to Developing Countries 285

Summary 286

Questions 287

Problems 288

References 289

Case Problem 11: The Rise and Fall of the US Stock Market 290

Chapter 12: International Banking Issues and Country Risk Analysis 293

Opening Case 12: Argentina’s Currency Crisis 293

12.1 International Banking Operations 295

12.2 International Loans 298

12.3 Country Risk Analysis 309

viii CONTENTS

Summary 314

Questions 314

Problems 314

References 315

Case Problem 12: The World Bank 316

Chapter 13: Financing Foreign Trade 319

Opening Case 13: US Export–Import Bank Seeks Private Investors 319

13.1 Basic Documents in Foreign Trade 320

13.2 The Payment Terms of Export Transactions 326

13.3 Sources of Financing Foreign Trade 333

Summary 339

Questions 340

Problems 341

References 342

Case Problem 13: Arms Dealers Get Creative with Offsets 342

Chapter 14: Financing Foreign Investment 345

Opening Case 14: Failed US–Vietnamese Joint Ventures 345

14.1 Internal Sources of Funds 346

14.2 External Sources of Funds 349

14.3 Development Banks 357

Summary 362

Questions 363

Problems 363

References 364

Case Problem 14: IBM’s Strategic Alliances 364

Part IV: Global Investment Strategy 367

Chapter 15: International Working Capital Management 369

Opening Case 15: An Efficient Global Treasury Structure 369

15.1 The Basic Concepts of Working Capital Management 370

15.2 Cash Management 382

15.3 Accounts Receivable Management 388

15.4 Inventory Management 389

Summary 392

Questions 393

Problems 393

References 395

Case Problem 15: Navistar International’s Netting System 395

Chapter 16: International Portfolio Investment 398

Opening Case 16: LE Group Shows how Korea Inc. Might Restructure 398

16.1 Key Terminology 400

CONTENTS ix

16.2 The Benefits of International Diversification 407

16.3 Methods of International Diversification 413

Summary 419

Questions 419

Problems 420

References 421

Case Problem 16: Investing in DaimlerChrysler in the USA 421

Chapter 17: Corporate Strategy and Foreign Direct Investment 425

Opening Case 17: How Can Companies Get the Most Out of Their Foreign

Investment? 425

17.1 An Overview of Foreign Direct Investment 426

17.2 Foreign Direct Investment in Developing Countries 429

17.3 Cross-Border Mergers and Acquisitions 433

Summary 441

Questions 441

Problems 442

References 443

Case Problem 17: BP’s Acquisition of Amoco 443

Chapter 18: International Capital Budgeting Decisions 447

Opening Case 18: External Factors Affecting Foreign Project Analysis 447

18.1 The Foreign Investment Decision-Making Process 448

18.2 Portfolio Theory 458

18.3 Capital Budgeting Theory and Practice 460

18.4 Political Risk Management 462

Summary 468

Questions 468

Problems 469

References 471

Case Problem 18: Multinational Capital Budgeting Practices 472

Chapter 19: The Cost of Capital for Foreign Projects 474

Opening Case 19: GM’s Target Debt Ratio in its Overseas Expansion 474

19.1 The Weighted Average Cost of Capital 476

19.2 The Optimum Capital Structure 480

19.3 The Marginal Cost of Capital and Investment Decisions 482

19.4 Cultural Values and Capital Structure 484

Summary 486

Questions 486

Problems 487

References 488

Case Problem 19: Do Multinational Firms Have Lower Debt Ratios than

Domestic Firms? 488

x CONTENTS

Chapter 20: Corporate Performance of Foreign Operations 490

Opening Case 20: Offshore Workers Increase IBM’s Profits 490

20.1 The Global Control System and Performance Evaluation 491

20.2 International Taxation 499

20.3 Transfer Pricing and Tax Planning 506

Summary 509

Questions 510

Problems 510

References 513

Case Problem 20 : Advanced Technology’s Ethical Dilemma 514

Web Resources and Internet Exercises 518

Answers to Selected End-of-Chapter Problems 538

Glossary 545

Index 564

CONTENTS xi

1.1 An integrated decision-making model in global finance 15

1.2 Expanded opportunity set for international business 16

2.1 Economic freedom and consumption 35

2.2 The Mercosur trade group 40

2.3 Progress on tariffs 50

2.4 The tax on trade 51

2.5 An organizational chart of the World Trade Organization 52

3.1 Global capital flows: sources and uses of global capital in 2001 69

3.2 The J-curve effect 71

3.3 US trade balances with Mexico and China 75

4.1 Argentine pesos per US dollar (inverted scale) 83

4.2 Market determination of exchange rates 84

4.3 How an increase in demand for pounds affects the equilibrium 85

4.4 How an increase in supply of pounds affects the equilibrium 86

4.5 The US dollar under floating exchange rates 90

4.6 The US dollar’s doldrums fuel the euro’s rise 101

4.7 Mexican international reserves in 1994 107

4.8 Mexican pesos per US dollar (inverted scale) 108

5.1 Shares of the reported foreign-exchange trading volume, 2001 114

5.2 A map of major foreign-exchange markets with time zones 117

5.3 Bank of Japan intervention 119

5.4 Relationships among various financial rates 136

5.5 Covered-interest arbitrage 139

6.1 The number of currency futures contracts traded on the Chicago

Mercantile Exchange 158

6.2 The market share for currency futures, 2001 158

Figures

6.3 The market value of a call option 166

6.4 The market value of a put option 167

6.5 Profit–loss profiles for an option holder 168

7.1 The structure of a parallel loan 179

7.2 An interest rate swap 184

7.3 A currency swap 186

7.4 Motivation for the interest rate swap 188

7.5 Motivation for the currency swap 190

7.6 The size of the over-the-counter derivatives market 194

8.1 Technical analysis: charting and the filter rule; peaks, troughs, trends,

resistance, and support levels illustrated for the $/DM 205

8.2 Technical analysis: moving-average rule (5- and 20-day moving averages) 206

9.1 Survey results of 110 chief financial officers 237

10.1 Exchange rates for the Brazilian real and the US dollar 257

11.1 Asian markets boom as foreigners pile in 264

11.2 International interest rate linkages 272

11.3 Major stock exchanges as a share of world stock market capitalization 283

11.4 Developing countries’ privatization revenues 284

11.5 (a) Net financial flows to developing countries, 1995–2002; (b) net

financial flows to developing countries from the private sector, 1995–2002 285

11.6 Stock prices and gross domestic product 290

11.7 The boom and bust of the US and Japanese stock markets 292

12.1 The real exchange rate between Argentina and Brazil 294

12.2 Currency devaluations for five crisis countries 303

12.3 Stock market drops for five crisis countries 303

13.1 The process of a typical trade transaction 326

13.2 US arms exports and offset obligations 343

15.1 Corporate paradise 379

15.2 The recent financial performance of Navistar International 396

16.1 All for one, and one for all 399

16.2 The security market line 403

16.3 An efficient frontier 407

16.4 An optimal portfolio 408

16.5 Gains from international diversification 409

16.6 Risk–return trade-offs of international portfolios, 1926–97 411

16.7 Efficient international portfolios 413

16.8 Total American investment in foreign securities 415

16.9 Hedge funds: the number of funds and the net new assets 416

16.10 Key financial statistics of DaimlerChrysler 423

16.11 DaimlerChrysler’s revenues and profits 423

17.1 Net inward FDI flows to developing countries, 1995–2003 430

17.2 FDI as the share of GDP in developing countries, 1995–2003 431

17.3 Privatization and M&A in developing countries, 1995–2003 431

17.4 Incentives for foreign direct investment 432

17.5 Corporate ownership in five major countries 434

17.6 A pickup in merger activity 437

FIGURES xiii

17.7 Major oil companies: their reserves and market capitalization 444

18.1 The risk–return trade-off and company goals 461

18.2 Expropriation acts, by year 465

19.1 GM’s Asia-Pacific forays 475

19.2 Debt ratio and the cost of capital 482

19.3 Optimum capital budget: domestic firm versus multinational 483

xiv FIGURES