Preface

International finance is one of the growth areas of the finance and economics curricula. Today’s financial marketplace is truly global. No student of economics or finance can fully understand current developments without some background in international finance. If, after studying this text, a student can pick up The Wall Street Journal and understand the international financial news, along with its implications, then we feel that we have succeeded as teachers. To this end, International Money and Finance offers a concise yet comprehensive overview of the subject. The basics of the foreign exchange market and the balance of payments are presented, along with accessible discussions of the most recent research findings related to exchange rate determination. Topics covered range from the nitty-gritty of financing international trade to intuitive discussions of overshooting exchange rates and currency substitution.

The first edition of International Money and Finance grew from the lecture notes used to teach undergraduate students at Arizona State University. The notes, as well as the book, summarized the current literature in international finance, with only elementary math as a prerequisite. It was extremely gratifying to find that instructors at other institutions found the earlier editions to be useful texts for undergraduate and MBA students. In fact, the adoption list ranged from the leading MBA schools in the country to small rural 4-year colleges. The fact that the text has proved successful with students of varying abilities and backgrounds is a feature that we have strived to retain in preparing this eighth edition.

Users of the past editions will find the ninth edition updated and substantially revised to keep pace with the rapidly changing world of international finance. There are several major changes in this edition. Chapter 1, The Foreign Exchange Market, has been updated to reflect the current foreign exchange market, while Chapter 2, International Monetary Arrangements, has been updated to include more detail on central bank intervention, SDRs, and the foreign reserve buildup in China. Chapter 3, The Balance of Payments, has had a major revision to reflect the changes to the Balance of Payments classification system. In addition, a section has been added to discuss “twin deficit” and saving/investment imbalances as possible sources of current account deficits/surpluses. Chapter 4, Forward-Looking Market Instruments, has updated discussion of forwards, futures, and options prices. Chapter 5, The Eurocurrency Market, has an added section discussing the old versus new LIBOR and the cheating that lead to the changing methodology for collecting the LIBOR. Chapter 6, Exchange Rates, Interest Rates, and Interest Parity and Chapter 7, Prices and Exchange Rates, have updated discussion of parity conditions. Chapter 10, International Investment, has been updated to include several different types of foreign investment, whereas Chapter 11, Direct Foreign Investment and International Lending, now focuses on international lending and crises. In particular the chapter has been updated with a detailed discussion of the Greek debt crisis.

The ninth edition has been written in the same spirit as the first eight—to provide a concise survey of international finance suitable for undergraduate and MBA classes.