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 Shapiro ftoc.tex V1 - July 25, 2013 6:47 P.M. Page vi

vi Contents

Resource Base 231 The Mathematics of Sovereign Debt

Country Risk and Adjustment to External Analysis 245
Shocks 232 Country Risk and the Terms of Trade 247
Market-Oriented versus Statist Policies 232 The Government’s Cost/Benefit
Why Capitalism Works 233 Calculus 248
Statist Policies Constrain Growth 235 Lessons from the International Debt
Why Statist Policies Persist 236 Crisis 250
Key Indicators of Country Risk and Onset of the Crisis 250
Economic Health 237 Reform Takes Hold 250
Market-Oriented Policies Work 240 Debt Relief 250
Market-Oriented Reform in Latin America 241 The Crisis Ends 251
Obstacles to Economic Reform 242 Lessons from Successful Economic
6.3 Country Risk Analysis in International Reform 251
Lending 244 6.4 Summary and Conclusions 251

Part II Foreign Exchange and Derivatives Markets 255

7 The Foreign Exchange Market 256 Forward Contract versus Futures

Contract 282
Learning Objectives 256 Advantages and Disadvantages of Futures
7.1 Organization of the Foreign Exchange Contracts 286
Market 257 Arbitrage between the Futures and Forward
The Participants 258 Markets 286
The Clearing System 260 8.2 Currency Options 286
Electronic Trading 261 Market Structure 287
Size 262 Using Currency Options 289
7.2 The Spot Market 264 Currency Spread 293
Knockout Options 294
Spot Quotations 264
Transaction Costs 266 Option Pricing and Valuation 295
Cross Rates 267 Using Forward or Futures Contracts versus
Currency Arbitrage 269 Options Contracts 296
Settlement Date 271 Futures Options 301
Exchange Risk 271 8.3 Reading Currency Futures and Options
The Mechanics of Spot Transactions 272 Prices 302
7.3 The Forward Market 272 8.4 Summary and Conclusions 305
Forward Quotations 274
Exchange Risk 276 9 Swaps and Interest Rate
Cross Rates 276 Derivatives 312
Forward Contract Maturities 277
7.4 Summary and Conclusions 277 Learning Objectives 312
9.1 Interest Rate and Currency Swaps 312
8 Currency Futures and Options Interest Rate Swaps 313
Markets 280 The Classic Swap Transaction 313
Cost Savings Associated with Swaps 315
Learning Objectives 280 Currency Swaps 316
8.1 Futures Contracts 280 Interest Rate/Currency Swaps 318
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Contents vii

Dual Currency Bond Swaps 322 9.3 Structured Notes 328

Economic Advantages of Swaps 324 Inverse Floaters 329
9.2 Interest Rate Forwards and Futures 324 Callable Step-Up Note 330
Forward Forwards 324 Step-Down Coupon Note 330
Forward Rate Agreement 325 9.4 Credit Default Swaps 330
Eurodollar Futures 326 9.5 Summary and Conclusions 332

Part III Foreign Exchange Risk Management 335

10 Measuring and Managing Translation Risk Shifting 359

and Transaction Exposure 336 Pricing Decisions 359
Exposure Netting 360
Learning Objectives 336 Currency Risk Sharing 361
10.1 Alternative Measures of Foreign Exchange Currency Collars 362
Exposure 337 Cross-Hedging 366
Translation Exposure 337 Foreign Currency Options 366
Transaction Exposure 338 Using Options to Hedge Bids 367
Operating Exposure 338 Using Options to Hedge Other Currency
10.2 Alternative Currency Translation Risks 368
Methods 338 Options versus Forward Contracts 369
Current/Noncurrent Method 339 10.7 Summary and Conclusions 370
Monetary/Nonmonetary Method 339
Temporal Method 339 11 Measuring and Managing Economic
Current Rate Method 340 Exposure 379
10.3 Transaction Exposure 341
10.4 Designing a Hedging Strategy 342 Learning Objectives 379
Objectives 343 11.1 Foreign Exchange Risk and Economic
Costs and Benefits of Standard Hedging Exposure 379
Techniques 346 Real Exchange Rate Changes and Exchange
Costs of Hedging 346 Risk 381
Benefits of Hedging 347 Importance of the Real Exchange Rate 382
Exposure Netting 349 Inflation and Exchange Risk 383
Centralization versus Decentralization 349 Competitive Effects of Real Exchange Rate
Managing Risk Management 350 Changes 384
Accounting for Hedging and FASB 133 351 11.2 The Economic Consequences of Exchange
Empirical Evidence on Hedging 352 Rate Changes 387
10.5 Managing Translation Exposure 352 Transaction Exposure 387
Funds Adjustment 352 Operating Exposure 387
Evaluating Alternative Hedging 11.3 Identifying Economic Exposure 391
Mechanisms 353 Aspen Skiing Company 391
10.6 Managing Transaction Exposure 354 Petróleos Mexicanos 392
Forward Market Hedge 355 Toyota Motor Company 393
The True Cost of Hedging 356 11.4 Calculating Economic Exposure 393
Money Market Hedge 357 Spectrum’s Accounting Exposure 395
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viii Contents

Spectrum’s Economic Exposure 395 Market Selection 401

Scenario 1: All Variables Remain the Same 395 Pricing Strategy 401
Scenario 2: Krona Sales Prices and All Costs Product Strategy 403
Rise; Volume Remains the Same 396 Production Management of Exchange
Scenario 3: Partial Increases in Prices, Costs, and Risk 405
Volume 397 Input Mix 405
Case Analysis 398 Shifting Production Among
11.5 An Operational Measure of Exchange Plants 406
Risk 398 Plant Location 407
Limitations 399 Raising Productivity 407
Empirical Results 400 Planning for Exchange Rate Changes 408
11.6 Managing Operating Exposure 401 Financial Management of Exchange
Marketing Management of Exchange Risk 411
Risk 401 11.7 Summary and Conclusions 416

Part IV Financing the Multinational Corporation 421

12 International Financing and National Regional Development Banks 449

Capital Markets 422 National Development Banks 450
Private Sector Alternatives 450
Learning Objectives 422 12.4 Project Finance 452
12.1 Corporate Sources and Uses of Funds 423 12.5 Summary and Conclusions 453
Financial Markets versus Financial
Intermediaries 423 13 The Euromarkets 455
Financial Systems and Corporate
Governance 424 Learning Objectives 455
Globalization of Financial Markets 427 13.1 The Eurocurrency Market 455
Financial Regulation and Deregulation 427 Modern Origins 456
Financial Innovation 429 Eurodollar Creation 456
12.2 National Capital Markets as International Eurocurrency Loans 458
Financial Centers 431 Terms 458
International Financial Markets 434 Multicurrency Clauses 459
Foreign Access to Domestic Markets 435 Relationship Between Domestic and
The Foreign Bond Market 435 Eurocurrency Money Markets 460
The Foreign Bank Market 436 Interest Differentials 460
The Foreign Equity Market 436 Eurocurrency Spreads 460
Globalization of Financial Markets Has Its Euromarket Trends 461
Downside 447 13.2 Eurobonds 462
12.3 Development Banks 448 Swaps 463
The World Bank Group 448 Links Between the Domestic and Eurobond
IBRD 448 Markets 463
IFC 448 Placement 463
IDA 449 Currency Denomination 463
Regional and National Development Interest Rates on Fixed-Rate Eurobonds 463
Banks 449 Interest Rates on Floating-Rate Eurobonds 465
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Contents ix

Eurobond Retirement 465 Proxy Industry 483

Ratings 465 Adjusted U.S. Industry Beta 483
Rationale for Existence of Eurobond The Relevant Base Portfolio 483
Market 465 The Impact of Globalization on the Cost of
Eurobonds versus Eurocurrency Loans 467 Capital 484
13.3 Note Issuance Facilities and Euronotes 468 Empirical Evidence 486
A Recommendation 486
Note Issuance Facilities versus
Eurobonds 470 The Relevant Market Risk Premium 487
Euro-Medium-Term Notes 470 Recommendations 488
Reasons for Success 471 14.4 The Cost of Debt Capital 488
Costs of a Euro-MTN Program 471 Annual Exchange Rate Change 490
Characteristics 471 Using Sovereign Risk Spreads 490
Risks 472 14.5 Establishing a Worldwide Capital
13.4 Euro-Commercial Paper 472 Structure 490
13.5 The Asiacurrency Market 473 Foreign Subsidiary Capital Structure 491
13.6 Summary and Conclusions 474 Political Risk Management 493
Currency Risk Management 494
Leverage and Foreign Tax Credits 494
14 The Cost of Capital for Foreign
Leasing and Taxes 495
Investments 476
Cost-Minimizing Approach to Global Capital
Structure 495
Learning Objectives 476 Joint Ventures 496
14.1 The Cost of Equity Capital 477 14.6 Valuing Low-Cost Financing
14.2 The Weighted Average Cost of Capital for Opportunities 496
Foreign Projects 478 Taxes 498
14.3 Discount Rates for Foreign Investments 479 Zero-Coupon Bonds 498
Evidence From the Stock Market 480 Debt versus Equity Financing 499
Key Issues in Estimating Foreign Project Government Credit and Capital
Discount Rates 481 Controls 499
Proxy Companies 482 Government Subsidies and Incentives 499
Local Companies 482 14.7 Summary and Conclusions 502

Part V Foreign Investment Analysis 507

15 International Portfolio 15.2 International Bond Investing 527

Investment 508 15.3 Optimal International Asset
Learning Objectives 508 Allocation 527
15.4 Measuring the Total Return from Foreign
15.1 The Risks and Benefits of International Portfolio Investing 529
Equity Investing 508
Bonds 529
International Diversification 510
Correlations and the Gains from Stocks 529
Diversification 511 15.5 Measuring Exchange Risk on Foreign
Recent Correlations 515 Securities 530
Investing in Emerging Markets 518 Hedging Currency Risk 530
Barriers to International Diversification 524 15.6 Summary and Conclusions 531
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x Contents

16 Corporate Strategy and Foreign Fees and Royalties 557

Direct Investment 535 Getting the Base Case Right 557
Accounting for Intangible Benefits 558
Learning Objectives 535 Alternative Capital-Budgeting
16.1 Theory of the Multinational Corporation 536 Frameworks 559
Product and Factor Market An Adjusted Present Value Approach 559
Imperfections 536 17.2 Issues in Foreign Investment Analysis 560
Financial Market Imperfections 537 Parent versus Project Cash Flows 561
16.2 The Strategy of Multinational Enterprise 537 A Three-Stage Approach 561
Innovation-Based Multinationals 538 Estimating Incremental Project Cash Flows 561
The Mature Multinationals 538 Tax Factors 562
The Senescent Multinationals 541 Political and Economic Risk Analysis 562
Foreign Direct Investment and Survival 543 Adjusting the Discount Rate or Payback
Cost Reduction 543 Period 562
Economies of Scale 543 Adjusting Expected Values 563
Multiple Sourcing 544 Exchange Rate Changes and Inflation 563
Knowledge Seeking 544 17.3 Foreign Project Appraisal: The Case of
Keeping Domestic Customers 546 International Diesel Corporation 564
16.3 Designing a Global Expansion Strategy 547 Estimation of Project Cash Flows 565
1. Awareness of Profitable Investments 548 Initial Investment Outlay 565
2. Selecting a Mode of Entry 548 Financing IDC-U.K. 566
Interest Subsidies 566
3. Auditing the Effectiveness of Entry
Sales and Revenue Forecasts 566
Modes 549
Production Cost Estimates 567
4. Using Appropriate Evaluation Projected Net Income 568
Criteria 550 Additions to Working Capital 568
5. Estimating the Longevity of a Terminal Value 569
Competitive Advantage 550 Estimated Project Present Value 569
16.4 Summary and Conclusions 551 Estimation of Parent Cash Flows 569
Loan Payments 569
17 Capital Budgeting for the Remittances to IDC-U.S. 570
Multinational Corporation 554 Earnings on Exports to IDC-U.K. 570
Estimated Present Value of Project to
Learning Objectives 554
IDC-U.S. 570
17.1 Basics of Capital Budgeting 555 Lost Sales 571
Net Present Value 555 17.4 Political Risk Analysis 572
Incremental Cash Flows 556 Expropriation 572
Cannibalization 556
Blocked Funds 573
Sales Creation 556
Opportunity Cost 556 17.5 Growth Options and Project Evaluation 574
Transfer Pricing 557 17.6 Summary and Conclusions 578

Part VI Multinational Working Capital

Management 585
18 Financing Foreign Trade 586 Cash in Advance 587
Letter of Credit 587
Learning Objectives 586 Online Alternatives 591
18.1 Payment Terms in International Trade 586 Draft 592
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Contents xi

Consignment 594 Management of the Short-Term Investment

Open Account 594 Portfolio 622
Banks and Trade Financing 595 Portfolio Guidelines 622
Collecting Overdue Accounts 595 Optimal Worldwide Cash Levels 623
Evaluation and Control 624
18.2 Documents in International Trade 597
Bill of Lading 597 Cash Planning and Budgeting 624
Multinational Cash Mobilization 625
Commercial Invoice 597
Bank Relations 627
Insurance Certificate 598
19.2 Accounts Receivable Management 628
Consular Invoice 598
Credit Extension 628
18.3 Financing Techniques in International
Trade 598 19.3 Inventory Management 629
Bankers’ Acceptances 598 Production Location and Inventory
Creating an Acceptance 598 Control 630
Terms of Acceptance Financing 599 Advance Inventory Purchases 630
Evaluating the Cost of Acceptance Financing 600 Inventory Stockpiling 631
Discounting 600 19.4 Short-Term Financing 631
Factoring 601 Key Factors in Short-Term Financing
Evaluating the Cost of Factoring 601 Strategy 631
Forfaiting 602 Short-Term Financing Objectives 632
18.4 Government Sources of Export Financing Short-Term Financing Options 633
and Credit Insurance 602 Intercompany Financing 633
Export Financing 602 Local Currency Financing 633
Export-Import Bank 602 Bank Loans 633
Private Export Funding Corporation 605 Commercial Paper 636
Trends 605 Calculating the Dollar Costs of Alternative
Export-Credit Insurance 606 Financing Options 637
Foreign Credit Insurance Association 606 Case 1: No Taxes 637
Taking Advantage of Case 2: Taxes 638
Government-Subsidized Export 19.5 Summary and Conclusions 640
Financing 607
Export Financing Strategy 607 20 Managing the Multinational Financial
Import Financing Strategy 607 System 643
18.5 Countertrade 608
18.6 Summary and Conclusions 610 Learning Objectives 643
20.1 The Value of the Multinational Financial
19 Current Asset Management and System 644
Short-Term Financing 613 Mode of Transfer 644
Timing Flexibility 644
Learning Objectives 613 Value 646
19.1 International Cash Management 614 20.2 Intercompany Fund-Flow Mechanisms:
Organization 614 Costs and Benefits 647
Collection and Disbursement of Funds 615 Tax Factors 647
Payments Netting in International Cash Transfer Pricing 648
Management 617 Tax Effects 648
Bilateral and Multilateral Netting 618 Tariffs 649
Information Requirements 619 Exchange Controls 652
Foreign Exchange Controls 620 Joint Ventures 652
Analysis 621 Disguising Profitability 652
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xii Contents

Evaluation and Control 652 Joint Ventures 662

Reinvoicing Centers 652 Equity versus Debt 662
Fees and Royalties 653 20.3 Designing a Global Remittance Policy 665
Leading and Lagging 654 Prerequisites 666
Shifting Liquidity 655 Information Requirements 667
Advantages 656 Behavioral Consequences 667
Government Restrictions 656
20.4 Summary and Conclusions 668
Intercompany Loans 657
Back-to-Back Loans 657
Parallel Loans 659
Dividends 660 Glossary 673
Tax Effects 660
Financing Requirements 662 Index 693
Exchange Controls 662
 Shapiro fpref.tex V2 - July 25, 2013 5:38 P.M. Page xiii

PREFACE

Approach

The basic thrust of this tenth edition of Multinational Financial Management (MFM) is to provide
a conceptual framework within which the key financial decisions of the multinational firm
can be analyzed. The approach is to treat international financial management as a natural and
logical extension of the principles learned in the foundations course in financial management.
Thus, it builds on and extends the valuation framework provided by domestic corporate finance
to account for dimensions unique to international finance. Multinational Financial Management
presumes a knowledge of basic corporate finance, economics, and algebra. However, it does not
assume prior knowledge of international economics or international finance and is therefore
self-contained in that respect.
MFM focuses on decision making in an international context. Analytical techniques
help translate the often vague guidelines used by international financial executives into specific
decision criteria. The book offers a variety of real-life examples, both numerical and institutional,
that demonstrate the use of financial analysis and reasoning in solving international financial
problems. These examples have been culled from the thousands of applications of corporate
practice that I have collected over the years from business periodicals and my consulting
practice. Scattering the best of these examples throughout the text allows students to see the
value of examining decision problems with the aid of a solid theoretical foundation. Seemingly
disparate facts and events can then be interpreted as specific manifestations of more general
financial principles.
All the traditional areas of corporate finance are explored, including working capital
management, capital budgeting, cost of capital, and financial structure. However, this is done
from the perspective of a multinational corporation, concentrating on those decision elements
that are rarely, if ever, encountered by purely domestic firms. These elements include multiple
currencies with frequent exchange rate changes and varying rates of inflation, differing tax
systems, multiple money markets, exchange controls, segmented capital markets, and political
risks such as nationalization or expropriation. Throughout the book, I have tried to demystify
and simplify multinational financial management by showing that its basic principles rest on
the same foundation as does corporate finance.
The emphasis throughout this book is on taking advantage of being multinational. Too
often companies focus on the threats and risks inherent in venturing abroad rather than on the
opportunities that are available to multinational firms. These opportunities include the ability
to obtain a greater degree of international diversification than security purchases alone can
provide as well as the ability to arbitrage between imperfect capital markets, thereby obtaining
funds at a lower cost than could a purely domestic firm.

xiii
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xiv Preface

Changes to the Tenth Edition

The tenth edition of Multinational Financial Management has been extensively updated to
incorporate the changes in the world financial system, particularly the ongoing European
sovereign debt crisis and the continuing development of China and India. The new material
that has been added includes the following:
l Update of the ‘‘Ruble Is Rubble’’ application (Chapter 2)
l Discussion of recent instability in the international monetary system (Chapter 3)

l Discussion of the trilemma policymakers face in designing an exchange rate regime

and examination of how the BRICs dealt with the trilemma in setting their own currency
policies (Chapter 3)
l Updated discussion of competitive devaluations (Chapter 3)

l Discussion of QE2 and extensive analysis of the recent crises and structural flaws in
the European Monetary Union, especially related to the experience of the PIGS (Chapter 3)
l Discussion of the carry trade and Iceland’s meltdown (Chapter 4)

l Discussion of the iPhone’s design and manufacture and its implications for the
current-account balance (Chapter 5)
l Discussions of recent Indian economic reforms and Solyndra in the context of crony
capitalism (Chapter 6)
l Analysis of the mathematics of sovereign debt analysis and its application to the
Eurozone (Chapter 6)
l Discussion of the PHLX FOREX Options market (Chapter 8)

l Discussion of credit default swaps (Chapter 9)

l Discussion of how Japanese manufacturers plan to cope with a strong yen

(Chapter 11)
l Analysis of how the Basel rules contributed to the global financial crisis (Chapter 12)

l Analysis of the strategic mistakes made by the Japanese electronics industry

(Chapter 16)
l Discussion of the controversy over whether Export-Import Bank financing distorts
markets or corrects for market distortions (Chapter 18)
The book also contains new charts and illustrations of corporate practice that are designed
to highlight specific techniques or teaching points. Again, the emphasis is on reinforcing and
making more relevant the concepts developed in the body of each chapter.

Pedagogy

The pedagogical thrust of the book is greatly enhanced by including the following learning and
teaching aids:
Focus on Corporate Practice:. Throughout the text, numerous real-world examples
and vignettes provide actual applications of financial concepts and theories. They
show students that the issues, tools, and techniques discussed in the book are being
applied to day-to-day financial decision making.
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Preface xv

Extensive Use of Examples and Applications:. Numerous short applications and

examples of specific concepts and techniques are scattered throughout the body of
most chapters.
Learning Objectives:. Each chapter opens with a statement of its action-oriented
learning objectives. These statements enhance learning by previewing and guiding the
reader’s understanding of the materials that will be encountered in the chapter.
Mini-Cases:. Each chapter has at least one mini-case that briefly presents a situation
that illustrates an important concept in that chapter and then has a series of questions
to test student understanding of that concept.
Problems and Discussion Questions:. There are many realistic end-of-chapter
questions and problems that offer practice in applying the concepts and theories
being taught. Many of these questions and problems relate to actual situations and
companies.
Web Resources:. Each chapter has sections called ‘‘Web Resources’’ and ‘‘Web
Exercises’’ that contain a set of relevant websites for that chapter and several exercises
that use those websites to address various issues that arise in the chapter. In addition,
the longer cases that previously appeared at the end of each section are now available
on the Internet. Solutions to these cases are available to faculty.
Glossary:. The back of the book contains a glossary that defines the key terms
appearing in the text.

Additional Resources

A complete set of ancillary materials is available for adopters of Multinational Finan-

cial Management. These resources can be found on the book’s companion site at
www.wiley.com/college/shapiro:
l An Instructor’s Manual containing detailed solutions to the end-of-chapter questions
and problems and tips for teaching each chapter
l Additional Case Studies along with teaching notes and solutions

l A Test Bank containing more than 160 additional questions and problems suitable for
use in multiple choice exams
l PowerPoint Presentations for course lectures. In addition, electronic files for all the
figures in the text are available in an Image Gallery.

Thanks

I have been greatly aided in developing Multinational Financial Management by the helpful
suggestions of the following reviewers: Robert Aubey, University of Wisconsin; James Baker,
Kent State University; Donald T. Buck, Southern Connecticut State University; C. Edward
Chang, Southwest Missouri State University; Jay Choi, Temple University; Robert C. Duvic,
University of Texas, Austin; Janice Wickstead Jadlow, Oklahoma State University; Steve
Johnson, University of Texas at El Paso; Boyden C. Lee, New Mexico State University;
Marc Lars Lipson, Boston University; Richard K. Lyons, University of California, Berkeley;
Dileep Mehta, Georgia State University; Margaret Moore, Franklin University; William Pugh,
 Shapiro fpref.tex V2 - July 25, 2013 5:38 P.M. Page xvi

xvi Preface

Auburn University; Bruce Seifert, Old Dominion University; Jay Sultan, Bentley College; Paul
J. Swanson, Jr., University of Cincinnati; and Steve Wyatt, University of Cincinnati. I am
particularly grateful to Jack K. Strauss, St. Louis University, for his extensive help in rewriting
Chapter 3. His hard work, excellent writing style, creative suggestions, and keen insights greatly
improved this chapter.
My family, especially my wife, Diane, as well as my mother and three brothers, have
provided me (once again) with continual support and encouragement during the writing of
this book. I appreciate the (usual) cheerfulness with which Diane endured the many hours I
spent writing the tenth edition of this text.

A.C.S.
Pacific Palisades
 Shapiro both01.tex V2 - July 25, 2013 9:26 P.M. Page xvii

Selected Currencies and Symbols

COUNTRY CURRENCY SYMBOL COUNTRY CURRENCY SYMBOL

Afghanistan Afghani Af Ecuador sucre S /.

Albania lek lek Egypt pound LE
Algeria dinar DA European euro €
Antigua and E.C. dollar E.C.$ Monetary
Barbuda Unit
Argentina peso Arg$ El Salvador colon C
Australia dollar $A Fiji dollar F$
Austria euro € Finland euro €
Bahamas dollar BS France euro €
Bahrain dinar BD Germany euro €
Barbados dollar BDS$ Greece euro €
Belgium euro € Guatemala quetzal Q
Belize dollar BZ$ Honduras lempira L
Bermuda dollar Ber$ Hong Kong dollar HK$
Bolivia boliviano Bs Hungary forint Ft
Botswana pula P India rupee Rs
Brazil* real R Indonesia rupiah Rp
Cambodia riel CR Iran, Islamic rial Rls
Canada dollar $ or Republic of
Can$ Ireland euro €
Cayman dollar CS Israel new sheqel NIS
Islands Italy euro €
Chile peso Ch$ Jamaica dollar J$
China, People’s yuan Y Japan yen ¥
Republic of** Kenya shilling K Sh
Colombia peso Col$ Korea, won W
Costa Rica colon C Republic of
Cyprus euro € Kuwait dinar KD
Denmark krone DKr Liberia dollar $
Dominican peso RD$ Liechtenstein franc Sw F
Republic Luxembourg euro €

∗
Prior to 1994, Brazil’s currency was the cruzeiro, Cr$.
∗∗
The currency is the renminbi, whereas the currency unit is the yuan.

xvii
 Shapiro both01.tex V2 - July 25, 2013 9:26 P.M. Page xviii

xviii Selected Currencies and Symbols

COUNTRY CURRENCY SYMBOL COUNTRY CURRENCY SYMBOL

Macao pataca P Singapore dollar S$
Malawi kwacha MK Slovakia euro €
Malaysia ringgit MS Slovenia euro €
Malta euro € Somalia shiling So. Sh.
Mauritius ruppe Mau Rs So. Africa rand R
Mexico peso Mex$ Spain euro €
Morocco dirham DH Sri Lanka rupee SL Rs
Namibia rand (S.Afr.) R Sweden krona SKr
Netherlands euro € Switzerland franc SFr
Netherlands guilder NA. f Taiwan dollar NT$
Antilles Thailand baht B
New Zealand dollar $NZ Trinidad and dollar TT$
Nigeria naira N Tobago
Norway krone NKr Tunisia dinar D
Oman rial Omani RO Turkey lira LT
Pakistan rupee PRs Ukraine ruble rub
Panama balboa B United Arab dirham Dh
Papua New kina K Emirates
Guinea United Kingdom pound £ or £ stg.
Paraguay guarani G Uruguay new peso NUr$
Peru new sol S/. Vanuatu vatu VT
Philippines peso P Venezuela bolivar Bs
Portugal euro € Vietnam dong D
Qatar riyal QR Western Samoa tala WS$
Russia ruble Rb Zaire zaire Z
Saudi Arabia riyal SRIs Zambia kwacha K
Senegal franc CFAF Zimbabwe dollar Z$
 Shapiro both02.tex V2 - July 25, 2013 9:39 P.M. Page xix

Symbols And Acronyms

ah Expected real return on home currency loan

af Expected real return on a foreign currency loan
ADR American depository receipt
APV Adjusted present value
B/L Bill of lading
β Beta coefficient, a measure of an asset’s riskiness
β∗ All-equity beta
βe Levered β
C1 Local currency cash flows in period t
C Cost
C(E) Price of a foreign currency call option
d Amount of currency devalution
D Forward discount
Df Amount of foreign currency debt
et Nominal exchange rate at time t
et Real exchange rate at time t
E (a) Exercise price on a call option or (b) Amount of equity
Ef Foreign subsidiary retained earnings
ft t-period forward exchange rate
g (a) Expected dividend growth rate or
(b) Expected rate of foreign currency appreciation against the dollar
HC Home currency
if (a) Expected rate of foreign inflation per period or
(b) Before-tax cost of foreign debt
ih Expected rate of home country inflation per period
id Before-tax cost of domestic debt
Io Initial investment
IRPT Interest rate parity theory
k Cost of capital
k0 Weighted cost of capital

xix
Discovering Diverse Content Through
Random Scribd Documents
 BOOK-PLATE OF COUNT J. M. PORTALIS.

His name occurs in the Dictionnaire des Girouettes, but without any
special circumstances; he simply accepted favours and titles from whatever
hand they came, royal or imperial, with equal condescension.
Now the plate of Ch. Amb. Caffarelli, given on page 121, is a little
puzzling; it is evidently of the First Empire period, and bears the toque of a
Baron; whilst the second quarter on the shield shows the arms assigned in
Napoleonic heraldry to a Préfet, namely: “De gueules à la muraille crénelée
d’argent, surmontée d’une branche de chêne du même.” Armorial Général
de l’Empire Français, 1812.
 BOOK-PLATE OF M. DUBUISSON, 1805.

In the Dictionnaire des Girouettes mention is made of a Caffarelli (no

Christian name) who was created a Count of the Empire, and Grand Eagle
of the Légion d’Honneur by Napoleon. The king afterwards created him
Chevalier of the Order of St Louis, and Commandant at Rennes; whilst in
1815 he again reverted to the service of the Emperor. There was also a
Baron Caffarelli who bore similar arms, but he was Bishop of Saint Brieux,
whilst on this plate no ecclesiastical emblems are shown. He, too, was a
member of the Légion d’Honneur.
To which of these two this plate belonged I cannot decide, nor is the
matter of the first importance.
BOOK-PLATE OF LUCIEN BONAPARTE, PRINCE OF CANINO. BROTHER OF
NAPOLEON BONAPARTE.

One plate may be named which forms an exception to the monotonous

regularity of the heraldic style under the First Empire; it is that of Antoine-
Pierre-Augustin de Piis, a dramatist. His monogram hangs on a palm tree,
each branch of which bears the name of some well-known singer,—Panard,
Favart, Collé, etc., whilst beneath are the titles of the vaudevilles he had
himself written. Another artistic little plate of this period is that of M.
Dubuisson, dated 1805, on page 130.
 EX-LIBRIS IMAGINAIRE DE NAPOLÉON I.

Lucien Bonaparte, Prince of Canino, younger brother of Napoleon,

resided some time in England, but died at Viterbo in 1840. His son, Charles,
Prince of Canino, distinguished as a naturalist, died in 1857, and it is not
easy to decide to which of the two this quiet, unpretentious little Canino
plate belonged.
The books of the first Napoleon were sumptuously bound, but he used
no book-plate. Monsieur L. Joly, in his Ex-Libris Imaginaires, furnishes one
such as might well have been used by the great soldier and law-maker. An
imperial eagle casts a thunder-bolt, which illuminates the peaks of the Alps;
below are seen the emblems of war, the owl, symbolic of wisdom, the Cross
of the Légion d’Honneur, and the books of the Code Napoléon.

BOOK-PLATE OF JOACHIM MURAT.

 CHAPTER VIII.

THE RESTORATION, AND LOUIS PHILIPPE.

N the abdication of Napoleon, Louis XVIII. was placed on the
throne of his ancestors, and reigned over France by the Grace
of God and the Holy Alliance.
He had learnt nothing and forgotten nothing during his exile,
and notwithstanding the strong advice of the Powers who had
set him up in business as a monarch, he encouraged a steady reaction
against the improvements that had been so liberally encouraged in the State
by Napoleon and his ministers.
The French nation had but little loyalty or affection for this gouty,
gluttonous, fat old man, but they ridiculed him, and bore with him, till his
death in 1824.
His brother, the Comte d’Artois, who succeeded him as Charles X., a
narrow-minded, obstinate, and priest-ridden man, persevered in the same
course as Louis XVIII., and was even more unpopular.
Under these two Bourbons, who strove hard to undo all the reforms that
the Revolution had effected, those of the old nobility who had survived the
Terror and the Wars were encouraged to return to France, and once again
the refrain was:

“Chapeau bas, chapeau bas!

Gloire au Marquis de Carabas.”

They resumed their ancient titles, estates, and family arms, but the bulk
of the French nation declined to consider them, or their claims, seriously.
Both Louis XVIII. and Charles X. created new nobles from amongst their
personal and political adherents, but few men of worth or importance were
willing thus to be ennobled.
The rules of heraldry devised by Napoleon were annulled, and the old
system revived. But though the wealth of the nation had greatly increased
during the few years of peace, whilst the taste for literature and the
formation of large collections of books had once again come into fashion,
the book-plates of this period show no improvement in taste, and no
originality in design. They are either overladen with meretricious
ornamentation, or simple name labels possessing no artistic interest
whatever.
One of the very few plates of the time worth naming is that of the
Duchesse de Berry for her library at Resny, on which we find the lilies of
the French royal family. The Duchess also used a simpler plate similar to a
book-binding stamp.
Probably Berryer the famous advocate, had his plate engraved about this
time; it is in the Louis XVI. style. (See page 149.)
The pretentious plate of Victor, Duc de Saint Simon Vermandois, Pair de
France, Grand d’Espagne, is an example of the want of taste of the
Restoration, as is also that of the Bibliothèque de La Motte which is
destitute of grace or finish.

BOOK-PLATE OF THE DUCHESSE DE BERRY.

 At length, in July, 1830, the French, weary of the reactionary rule of
Charles X. and of his breaches of faith, drove him from the throne, and he
sought refuge in England.
His cousin Louis Philippe was elected king of the French, and for
eighteen years the country enjoyed comparative peace, and great
commercial prosperity.
Then at last was France released from the nightmare pressure of the
ancien régime, and free to choose a constitutional government suited to her
requirements and the progress of modern civilization.
During his reign Louis Philippe created a number of new nobles, the
chosen men being for the most part politicians who supported the
government in parliament, rich tradesmen, office holders, and a few literary
men.
Two of the greatest men of the day, Thiers and Guizot, bluntly refused to
be ennobled, as later on did Mons. Rouher. The assumption of false titles
still continued, whilst the prefix de which had formerly indicated gentle
birth or landed estates, came to be so commonly employed as to carry no
signification whatever. Book-plates of this period have little to distinguish
them from those of the Restoration, except that the seal pattern, or the plain
shield within a belt or garter became more common, whilst some artists
affected a revival of a kind of Gothic ornamentation, with the inscription in
archaic phraseology.
Of this latter style a beautiful example is the plate designed for himself
by the late Mons. Claude E. Thiery, of Maxéville.
It represents the interior of a mediæval library, the walls of which are
decorated with the arms of Lorraine. A reader is seated in front of two open
folios, and above the design the inscription is:
“Cestuy livre est a moy Claude Thiery ymaigier de moult haust et
puissant Seigneur Mon seigneur Françoy Joseph empéreur,” etc.
It is unnecessary to quote the whole of the somewhat lengthy inscription,
as prints from the original plate were issued with the “Archives de la
Société Française des Collectionneurs d’Ex Libris,” January 1895, together
with a somewhat indignant letter from its owner pointing out several
inaccuracies which had been made in an article describing the plate in “Ex
Libris Ana,” page 73.
 The description was certainly curiously inexact, but that these laborious
imitations of the crabbed handwriting, the archaic phraseology, and the
miniature painting to be found on ancient manuscripts are lacking in
originality, and out of place on modern book-plates, as says the writer in
“Ex Libris Ana” (and herein lay the sting of his remarks), is a conclusion in
which many collectors will certainly agree.
Other well-known plates of this period are those of Aimé Leroy, A.
Mercier, Viollet Le-Duc, Gabriel Peignot, Milsan, Ambroise Firmin-Didot,
Desbarreaux Bernard, Pixérecourt, and Bazot, Notaire à Amiens. Yet even
these present few points of interest, literary or artistic.
Aimé Leroy had a Gothic window, through which a student is seen
reading. Motto: Mes livres sont ma joie. The plate of Gabriel Peignot was
also what we should style a library interior, as was appropriate to its owner
who had been for years connected with the libraries of Vésoul and Dijon,
and had made bibliography the study of his life which extended to the good
old age of eighty-two. He died in 1849.
Bazot, Notaire Amiens, had an imitation of the old style of armorial
plate, with a ribbon on which the dates 1548 and 1848 appear. There is no
explanation known of the first date, 1548.
Milsan attempts a weak pun on his name, bank notes for 1,000 and 100
francs represent the words Mille cent. This is the kind of joke that even a
virtuous man might make in the seclusion of his own family circle, but that
any sane man should engrave, revise it, print it, and finally paste it in all his
books is something which almost destroys our faith in human nature.
A member of the famous publishing house, Mons. Ambroise Firmin-
Didot (author of a “History of Wood-Engraving”) had an original and very
appropriate design printed in gold on red morocco. In allusion to the date of
the foundation of his firm, and their ancient sign, it bore the device: à la
bible d’or 1698, and the inscription Bibliotheca Ambrosii Firmini Didoti,
whilst in the centre was an open bible. This is just one of the few plates of
this period, interesting for its owner’s sake, and for its originality, which
collectors would wish to have, but it is rather difficult to obtain.
R. C. G. de Pixérecourt is found on the book-plate of the prolific
dramatic author whose real appellations were René Charles Guilbert. As he
was born at Pixérecourt he ennobled himself by calling himself de
Pixérecourt, a piece of vanity which probably deceived no one. If the State
were to tax all these assumptions of nobility, a good addition would be
made to the French revenue. In other respects his ex-libris was modest
enough; he did not steal a coat-of-arms, but had the simple Cross of the
Legion of Honour with two branches of oak, and for motto the last line of
the following charming sonnet by Desbarreaux Bernard.

SONNET.

Mes livres sont ma joie! aussi sur eux je veille

Comme veille l’avare auprès de son trésor;
Et mon esprit charmé, qui rarement sommeille,
Les prend, les lit, les quitte et les reprend encor.

Ne ménageant pour eux, ni prix, ni soins, ni veille,

Toujours prompt, toujours prêt à prendre mon essor;
Aux timides conseils fermant surtout l’oreille,
Nouveau Jason, je cours, ravir ma toison d’or!

Tout nous trompe ici-bas, les hommes et les choses,

La vipère et le taon s’abritent sous les roses,
Le peuple à la vertu ne crois plus désormais,

Le trompeur, le trompé, conspirent à portes closes,

Du sexe on sait la ruse et les métamorphoses,
Un livre est un ami qui ne trompe jamais.

THE SECOND EMPIRE.

Owing to a variety of circumstances Louis Philippe became unpopular,
and at length in 1848 there were serious disturbances in Paris. It is probable
that a man of strong will might have put these down with some little
bloodshed, but Louis Philippe was a kindly, peace-loving man, and rather
than face the horrors of a civil war he abdicated, and the second Republic
was proclaimed, to be quickly changed into the Second Empire, under
Napoléon III.

Par le temps renversé, quand cet empire immense,

Chef-d’œuvre de génie autant que de puissance.
 Un jour n’offrira plus aux siécles à venir
Que de grandes leçons et qu’un grand souvenir.
These lines were written about the First Empire, but are still more
appropriate to the Second, which is now, indeed, nothing more than a name
connected with the saddest of souvenirs.

BOOK-PLATE OF MONSIEUR RISTON.

Engraved by D. Collin.

Under the Second Empire book-plates began to have a distinctly

personal character, more originality in conception, together with much
greater freedom and abandon in execution. Humorous designs also
occasionally appear, where all had hitherto been formal, cold, pompous, or
severe. The simple heraldic plate falls into disfavour amongst those who are
entitled to bear arms, though curiously enough the assumption of false arms
and titles goes on exactly as before.
 BOOK-PLATE OF THE VICOMTE BEUGNOT.

In 1857 the Minister of Justice addressed a report on this topic to the

emperor, asserting “que jamais peut-être la tendance à sortir de sa position
et à se parer de titres auxquels on n’a pas droit ne s’est manifesté d’une
manière plus regrettable que depuis ces dernières années.”
But the evil had existed, still exists, and will continue so long as the
vanity of human nature prompts men to lay claim to ancient descent, and to
assume arms and titles either stolen, ready made, or purchased at the
Bureaux de Généalogistes which abound in Paris as in London.
It is no new crime, this snobbism—Molière jested at it two centuries
ago:

“Je sais un paysan qu’on appelait Gros-Pierre,

Qui n’ayant pour tout bien qu’un seul quartier de terre,
Y fit tout à l’entour faire un fossé bourbeux,
Et de Monsieur de l’Isle en prit le nom pompeux.”
 BOOK-PLATE OF M. LE COMTE LANJUINAIS.

As for the real heraldry of the Second Empire, such as there was of it,
the fashion of the First Empire was revived by Napoleon III., whose
constant endeavour it was to make the French people recognize in him the
nephew of his uncle, whilst they, on the other hand, would not seriously
believe that he was even the son of his reputed father. “Vous n’avez rien du
grand Empéreur Napoléon,” said his cousin Plon-plon to him one day. “You
are mistaken, I have all his poor relations,” replied the easy, good-natured
Louis Napoleon, who was in addition hampered by the descendants of the
courtiers of the first Napoleon.
 BOOK-PLATE OF THE MARQUIS DE PASTORET.

The emperor did not possess a book-plate, but books with the imperial
arms stamped on their bindings occasionally occur in French sales. More
rare, and consequently more sought after, are the volumes which are
stamped either with his monogram, or with the elegant little device of the
Empress Eugénie.
Severely simple as is the monogram of Napoleon III., it is ingenious, and
not without a certain air of grandeur, whilst the badge of the empress,
though still preserving an imperial character, is more graceful and
ornamental, as was appropriate to its owner, who was considered one of the
most beautiful women of her time.
 CIPHER ON BINDINGS OF NAPOLEON III.

These two stamps were principally used on the bindings of books which
were either presented or dedicated to the emperor and empress, and the
volumes on which they are found certainly belonged to their private library.
A characteristic example of the formal heraldic book-plate in vogue
during the Second Empire is that of Amédée David, Marquis de Pastoret, a
politician and littérateur, who was born in 1791, and died on May 19, 1857.
His war cry, “France! France!” recalls the fact, little to his credit, that he
was one of the first to applaud the Coup d’Etat of Napoleon III. and to
profit by it. (See p. 144.)
 CIPHER ON BINDINGS OF THE EMPRESS EUGÉNIE.

He was the son of M. Pastoret, a senator and member of the Institute of

France, created a Count of the Empire by the first Napoleon, with a grant of
arms thus described in the Armorial Général de l’Empire Français: “D’or à
la bande de gueules chargée d’un berger paissant un mouton d’argent.”
This Count of the First Empire became a Peer of France under the
Restoration, and figures as a brilliant instance of a successful turncoat in the
Dictionnaire des Girouettes.
 BOOK-PLATE OF LE COMTE DE GRANCEY.

On page 143 is the modern armorial of the Comte Lanjuinais, probably

that of the son of the first Comte Lanjuinais, who started in politics as a
member of the National Convention, swore fidelity to the Republic and
death to the King. This did not prevent him from accepting the title of
Count of the Empire from Napoleon, who also named him a knight
commander in the Légion d’Honneur. On the return of Louis XVIII. he was
named a Peer of France, but he again espoused the cause of Napoleon on
his escape from Elba, whilst on the downfall of the Empire for the second
time he obtained another appointment by the grace of the king. His name
and fame are immortalized in the “Dictionary of Turncoats.”
 BOOK-PLATE OF THE DUC DE MOUCHY.

The Comte de Beugnot was a Councillor of State, and Officer of the

Légion d’Honneur under Napoleon I., and he also served under Louis
XVIII. The Vicomte, his son, on his modern book-plate (see p. 142) carries
quarterly first and fourth, the Beugnot arms, “argent, au chevron d’or,
accompagne de trois grappes de raisin de gueules.”
 BOOK-PLATE OF MONSIEUR BERRYER.

Monsieur Pierre Antoine Berryer was the most famous advocate at the
French bar during the Empire, his defence of the Count Montalembert in
1858 created some sensation at the time. He was elected a member of the
Académie Française in 1855, and of the Corps Legislatif in 1863.
His book-plate is distinctly in the Louis XVI. style, but this is not so
incongruous as it appears at first sight, for M. Berryer was born in 1790,
and was first elected a deputy in 1830 when France was still under the
Bourbons.
On page 148 is a reproduction of the plate of the Duc de Mouchy,
another supporter of the Third Empire, bearing the Cross of the Legion of
Honour. He and the duchess for some time resided in Paris in a house which
belonged to the empress, but after the downfall of the Empire, this house
was bought by the late Baron Hirsch, who also bought Beauregard, near St.
Cloud, which had formerly belonged to Mrs. Howard, a mistress of
Napoleon.
 BOOK-PLATE OF GENERAL DE LANCEY.

What a curious comic opera court it was, this of the Second Empire, with
the emperor’s life-long friend Persigny at the head of it, and he the son of a
pastrycook.
Persigny married the daughter of Marshal Ney, a rich, vulgar, violent
woman. When Persigny was appointed Ambassador to the Court of St.
James, he unfortunately brought his wife with him. At a bal masqué,
attended by the Queen and Prince Albert, the wife of Persigny suddenly
slapped a lady in the face because she had copied her costume;
consequently “urgent private affairs” required the immediate return to Paris
of Mons. de Persigny. The emperor, to console him, shortly afterwards
created him a duke.
Then there were De Maupas, the Count Walewski (an illegitimate son of
the first Napoleon), the Baron Haussmann, Préfet de la Seine, who rebuilt
Paris, and enriched all his friends, De Lesseps, and crowds of political
adventurers, feather-bed soldiers, and financial schemers, who thrived in
this hot-bed of corruption, and amassed fabulous fortunes at the expense of
France.
The festivities came to an end none too soon for the nation, but the bill
was a terrible one to pay.
 CHAPTER IX.

THE FRONTIER PROVINCES.

N June, 1881, M. Auguste Stoeber wrote some articles on
Alsatian book-plates which were published in the “Express de
Mulhouse.” In response to the persuasion of his friends he re-
published these notes in a pamphlet entitled “Petite Revue
d’Ex-Libris Alsaciens, par Auguste Stoeber, avec un facsimile
de l’Ex-Libris de C. Wolfhardt, dit Lycosthenes, de Rouffach.” Mulhouse,
Veuve Bader et Cie, 1881. M. Stoeber died a few years later, and his little
pamphlet is now very rare.
We have already seen that 1574 is the year of the earliest known dated
French ex-libris; M. Stoeber claims for Alsace a more ancient ex-libris,
which is not dated, but from its history must have been engraved before
1561. It belonged to Conrad Wolfhardt, who pedantically translated his
family name into Lycosthenes. He was born at Rouffach in 1518, studied at
Heidelberg, and became a professor at Basle, where he died on the 25th
March, 1561. His book-plate appears to have been engraved on some soft
metal, either lead or pewter; there is no attempt to show the tinctures on the
shield, which is surmounted by a death’s head and hour-glass. The design is
surrounded by Latin mottoes, and beneath is the inscription “Symbolum
Conradi Lycosthenis Rubeaquensis.”
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