Foundations of Financial Management: An Analysis (Part 84)

“It doesn’t matter about money; having it, not having it. Or having clothes, or not having them. You’re still left alone with yourself in the end.”
Billy Idol

International Financial Management

(Part D)

by

 Charles Lamson

Foreign Investment Decisions

Several explanations are offered by the Directory of American Firms Operating in Foreign Countries for the moves to foreign soil. First, with the emergence of trading blocs in Europe, American firms feared their goods might face import tariffs in those countries. To avoid such trade barriers, U.S. firms started manufacturing in foreign countries. The second factor was the lower production costs overseas. Firms were motivated by the significantly lower wage costs prevailing in foreign countries. Firms in labor-intensive industries, such as textiles and electronics, moved some of their operations to countries where labor was cheap. Third, superior American technology gave U.S. firms an easy access to oil exploration, mining, and manufacturing in many developing nations. A fourth advantage relates to taxes. The U.S.-based multinational companies (MNCs) can postpone payment of U.S. taxes on income earned abroad until such income is repatriated (forwarded) to the parent company. This tax deferral provision can be used by an MNC to minimize its tax liability. Some countries, like Israel, Ireland, and South Africa, offer special tax incentives for foreign firms that establish operations there.

The decision to invest in a foreign country by a firm operating in an oligopolistic industry is also motivated by strategic considerations. When a competitor undertakes a direct foreign investment, other companies quickly follow with defensive investments in the same foreign country. Foreign investments undertaken by U.S. soft drink companies are classic examples of this competitive reaction. Wherever you find a Coca-Cola subsidiary in a foreign country, you are likely to see a Pepsi affiliate also operating in that country.

International diversification of risks is also an important motivation for direct foreign investment. The basic premise of portfolio theory in finance is that an investor can reduce the risk level of a portfolio by combining those investments whose returns are less than perfectly positively correlated. In addition to domestic diversification, it is shown in Figure 3 that further reduction in investment risk can be achieved by diversifying across national boundaries. International stocks, in Figure 3, show a consistently lower percentage of risk compared to any given number of U.S. stocks in a portfolio. It is argued, however, that institutional and political constraints, language barriers, and lack of adequate information on foreign investments prevent investors from diversifying across nations. Multinational firms, on the other hand, through their unique position around the world, derive the benefits of international diversification. This argument has been weakened somewhat by the introduction of international mutual funds.

Figure 3 Risk reduction from international diversification

While the U.S. based firms took the lead in establishing overseas subsidiaries during the 1950s and 1960s, European and Japanese firms started this activity in the 1970s and have continued into the 21st century (Block & Hirt, p. 616). The flow of foreign direct investment into the United States has proceeded at a rapid rate. These Investments employ millions of people. It is evident that the United States is becoming an attractive site for foreign investment. In addition to the international diversification and strategic considerations, many other factors are responsible for this inflow of foreign capital into the United States. Increased foreign labor costs in some countries and saturated overseas markets in others are partly responsible. In Japan, an acute shortage of land suitable for industrial development and a near total dependence on imported oil prompted some Japanese firms to locate in the United States. In Germany, a large number of holidays, restrictions limiting labor layoffs, and worker participation in management decision making caused many firms to look favorably at the United States. Political stability, large market size, and access to advanced technology are other primary motivating factors for firms to establish operations in the United States. Also, large U.S. balance of payments deficits have spread hundreds of millions of dollars around the world for potential reinvestment in the United States, particularly by the Japanese.

To some extent foreign investors in the U.S. Treasury bond market have been bankrolling enormous budget deficits that the government has been running up when the U.S. government began falling $150 to $200 billion into the red on an annual basis in the 1980s, many analysts thought this would surely mean high inflation, high interest rates, and perhaps a recession. They also were sure there would be a "shortage of capital" for investments because of large government borrowing to finance the deficits. For the most part, foreign investors from Japan, Western Europe, Canada, and elsewhere have bailed the government out by supplying the necessary capital. Of course, this means the United States is more dependent on flows of foreign capital into the country. We must satisfy our "outside" investors or face the unpleasant consequences. During the last four decades, the U.S. has gone from being the largest lender in the world to the largest borrower.

Analysis of Political Risk

Business firms tend to make direct investments in foreign countries for a relatively long time. Because of the time necessary to recover the initial investment, they do not intend to liquidate their Investments quickly. The government may changed hands several times during the foreign firms tenure in that country; and, when a new government takes over, it may not be as friendly or as cooperative as the previous administration. An unfriendly government can interfere with a foreign affiliate in many ways. It may impose foreign exchange restrictions, or the foreign ownership share may be limited to a set percentage of the total. Repatriation (transfer) of a subsidiary's profit to the parent company may be blocked, at least temporarily; and, in the extreme case, the government may even expropriate (take over) the foreign subsidiaries assets. The multinational company may experience a sizable loss of income or property, or both, as a result of this political interference. Many U.S. firms, have lost hundreds of millions of dollars in politically unstable countries. Therefore, analysis of foreign political risk is gaining more attention and multinational firms. 

The best approach to protection against political risk is to thoroughly investigate the country's political stability long before the firm makes any investment in that country. Companies use different methods for assessing political risk. Some firms hire consultants to provide them with a report of political risk analysis. Others form their own advisory committees (little state departments) consisting of top-level managers from headquarters in foreign subsidiaries. After ascertaining the country's political risk level, a multinational firm can use one of the following strategies to guard against such risk:

1. One strategy is to establish a joint venture with a local entrepreneur. By bringing a local partner into the deal, the MNC not only limits its financial exposure but also minimizes anti-foreign feelings.

2.  Another risk management tactic is to enter into a joint venture, preferably with firms from other countries. For example, an energy company may pursue its oil production operation in Zaire in association with Royal Dutch Petroleum and Nigerian National Petroleum as partners. The foreign government will be more hesitant to antagonize a number of partner-firms of many nationalities at the same time.

3.  When the perceived political risk level is high, insurance against such risks can be obtained in advance. Overseas Private Investment Corporation (OPIC), a federal government agency, sells insurance policies to qualified firms. This agency insures against losses due to inconvertibility into dollars of amounts invested in a foreign country. Policies are also available from OPIC to insure against expropriation and against losses due to war or revolution. Many firms have used the service over the years. Private insurance companies, such as Lloyd's of London, American International Group, Inc., Cigna, and others, issue similar policies to cover political risk.

Political risk umbrella policies do not come cheaply. Coverage for projects in "fairly safe" countries can also cost anywhere from 0.3% to 12% of the insured values per year. Needless to say, the coverage is more expensive or unavailable in troubled countries. OPIC's rates are lower than those of private insurers, and its policies extend for up to twenty years, compared to 3 years or less for private insurance policies. 

*MAIN SOURCE: BLOCK & HIRT, 2005, FOUNDATIONS OF FINANCIAL MANAGEMENT, 11TH ED., PP. 615-618*

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Foundations of Financial Management: An Analysis (part 83)

“The person who doesn't know where his next dollar is coming from usually doesn't know where his last dollar went.”

Unknown

International Financial Management

(Part C)

by

Charles Lamson

Managing Foreign Exchange Risk

When the parties associated with a commercial transaction are located in the same country, the transaction is denominated in a single currency. International transactions inevitably involve more than one currency (because the parties are residents of different countries). Since most foreign currency values fluctuate from time to time, the monetary value of an international transaction measured in either the seller's currency or the buyer's currency is likely to change when payment is delayed. As a result, the seller may receive less revenue than expected or the buyer may have to pay more than the expected amount for the merchandise. Thus the term foreign exchange risk refers to the possibility of a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates. Importers, exporters, investors, and multinational firms are all exposed to this foreign exchange risk.

The international monetary system has undergone a significant change over the last 50 years. The free trading Western nations basically went from a fixed exchange rate system to a "freely" floating rate system. For the most part, the new system has proved its agility and resilience during last four decades. The free market exchange rates have responded and adjusted well to adverse conditions. Consequently, the exchange rates fluctuated over a much wider range than before. The increased volatility of exchange markets forced many multinational firms, importers, and exporters to pay more attention to the function of foreign exchange risk management.

The foreign exchange risk of a multinational company (MNC) is divided into two types of exposure. They are: accounting or translation exposure and transaction exposure. An MNC's foreign assets and liabilities, which are denominated in foreign currency units, are exposed to losses and gains due to changing exchange rates. This is called accounting or translation exposure. The amount of loss or gain resulting from this form of exposure and the treatment of it in the parent company's books depend on the accounting rules established by the parent company's government. In the United States, the rules are spelled out in the Statement of Financial Accounting Standards (SFAS) No. 52. Under SFAS 52 all foreign currency-denominated assets and liabilities are converted at the rate of exchange in effect on the date of balance sheet preparation. An unrealized translation gain or loss is held in an equity reserve account while the realized gain or loss is incorporated in the parent's consolidated income statement for that period. Thus SFAS 52 partially reduces the impact of accounting exposure resulting from the translation of a foreign subsidiary's balance sheet on reported earnings of multinational firms.

However, foreign exchange gains and losses resulting from international transactions, which reflect transaction exposure, are shown in the income statement for the current period. As a consequence of these transactional gains and losses, the volatility of deported earnings-per-share increases. Three different strategies can be used to minimize this transaction exposure.

1. Hedging in the forward exchange market.

2.  Hedging in the monetary market.

3.  Hedging in the currency futures market.

Forward Exchange Market Hedge To see how the transaction exposure can be covered in forward markets, suppose Electricitie de France, an electric company in France, purchased a large generator from General Electric of the United States for 875,000 euros on March 21st, 2003, and GE was promised the payment in euros in 90 days. Since GE is now exposed to exchange risk by agreeing to receive the payment in euros in the future, it is up to GE to find a way to reduce this exposure. One simple method is to hedge the exposure in the forward exchange market. On March 21st, 2003, to establish the forward cover, GE sells a forward contract to deliver the 875 thousand Euros 90 days from that date in exchange for $976,412.50 on June 20th, 2003, GE receives payment from Electricitie de France and delivers the 875,000 euros to the bank that signed the contract. In return the bank delivers $976,412.50 to GE.

Thus, through this International transaction, GE receives the same dollar amount it expected three months earlier regardless of what happened to the value of euros in the interim. In contrast, if the sale had been invoiced in U.S. dollars, Electricitie de France, not GE, would have been exposed to the exchange risk.

Money Market Hedge A second way to have eliminated transaction exposure in the previous example would have been to borrow money in euros and then convert it to U.S. Dollars immediately. When the account receivable from the sale is collected 3 months later, the loan is cleared with the proceeds. In this case GE's a strategy consists of the following steps. 

The money market hedge basically calls for matching the exposed asset (account receivable) with a liability (loan payable) in the same currency. Some firms prefer this money market hedge because of the early availability of funds possible with this method.

Currency Futures Market Hedge Transaction exposure associated with a foreign currency can also be covered in the futures market with a currency futures contract. The International Monetary Market (IMM) of the Chicago Mercantile Exchange began trading in futures contracts in foreign currencies on May 16th, 1972. Trading in currency futures contracts also made a debut on the London International Financial Futures Exchange (LIFFE) in September 1982. Other markets have also developed around the world. Just as futures contracts are traded in corn, wheat, hogs, and beans, foreign currency futures contracts are traded in these markets. Although the futures market and forward market are similar in concept they differ in their operations. To illustrate the hedging process in the currency futures market, suppose that in May the Chicago-based LaSalle National Bank considers lending 500,000 pesos to a Mexican subsidiary of a U.S. parent company for 7 months. The bank purchases the pesos on the spot market, delivers them to the borrower, and simultaneously hedges it's transactions exposure by selling December contracts in pesos for the same amount. In December when the loan is cleared, the bank sells the pesos in the must spot market and buys back the December peso contracts. The contracts are illustrated for the spot and futures market in Table 3.

Table 3 Currency futures hedging

While the loan was outstanding, the peso declined in value relative to the U.S. dollar. Had the bank remained unhedged, it would have lost $1,950 in the spot market. By hedging in the futures market, the bank was able to reduce the loss to $1,300. A $650 gain in the futures market was used to cancel some of the $1,950 loss in the spot market.

These are not the only means companies have for protecting themselves against foreign exchange risk. Over the years, multinational companies have developed elaborate foreign asset management programs, which involve such strategies as switching cash and other current assets into strong currencies, while piling up debt and other liabilities in depreciating currencies. Companies also encourage the quick collection of bills in weak currencies by offering sizable discounts, while extending liberal credit and strong currencies. 

*MAIN SOURCE: BLOCK & HIRT, 2005, FOUNDATIONS OF FINANCIAL MANAGEMENT, 11TH ED., PP. 613-615*

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Foundations of Financial Management: An Analysis (part 82)

Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are. 

James W. Frick

International Financial Management

(Part B)

by

Charles Lamson

Foreign Exchange Rates

Suppose you are planning to spend some time in London. To put your plan into operation you will need British currency, that is British pounds (￡), so you can pay for your expenses during your stay. How many British pounds you can obtain for $1,000 will depend on the exchange rate at that time. The relationship between the values of two currencies is known as the exchange rate. The exchange rate between U.S. dollars and British pounds is stated as dollars per pound or pounds per dollar. For example, the quotation of $1.37 per pound is the same as ￡.73 per dollar (1/$1.37). At this exchange rate you can purchase 730 British pounds with $1,000. Each day, current exchange rates can be found on the Internet by doing a quick web search.

There is no guarantee that any currency will stay strong relative to other currencies and the dollar is no exception. Financial managers should always pay close attention to exchange rates and any changes that might be forecasted to occur. The relative change in the purchasing power between countries affects imports and exports, interest rates, another economic variables. The major reasons for exchange rate movements are discussed in the following sections.

Factors Influencing Exchange Rates

The present international monetary system consists of a mixture of freely floating exchange rates and fixed rates. The currencies of the major trading partners of the United States are traded in free markets. In such a market the exchange rate between two currencies is determined by the supply of, and the demand for, those currencies. This activity, however, is subject to intervention by many countries' central banks. Factors that tend to increase the supply or decrease the demand schedule for a given currency will bring down the value of that currency in foreign exchange markets. Similarly the factors that tend to decrease the supply or increase the demand for a currency will raise the value of that currency. Since fluctuations in currency values results in foreign exchange risk, the financial executive must understand the factors causing these changes in currency values. Although the current value of a currency is determined by the aggressive aggregate supply and demand for that currency, this alone does not help financial managers understand or predict the changes in exchange rates. Fundamental factors, such as inflation, interest rates, balance of payments, and government policies, are quite important in explaining both the short-term and long-term fluctuations of a currency value.

Inflation A parity between the purchasing powers of two currencies establishes the rate of exchange between the two currencies. Suppose it takes $1 to buy one dozen apples in New York and 1.25 Euros to buy the same apples in Frankfurt, Germany. Then the rate of exchange between the U.S. dollar and the euro is E1.25/$1.00 or $0.80/euro. If prices of Apple's double in New York while the prices in Frankfurt remain the same, the purchasing power of a dollar in New York should drop 50 percent. Consequently, you will be able to exchange $1 for only E.625 in foreign currency markets (or receive $1.60 per euro).

Currency exchange rates tend to vary inversely with their respective purchasing powers to provide the same or similar purchasing power in each country. This is called the purchasing power parity theory. When the inflation rate differential between two countries changes, the exchange rate also adjusts to correspond to the relative purchasing powers of the countries. 

Interest Rates Another economic variable that has a significant influence on exchange rates is interest rates. Capital flows in the direction of higher yield for a given level of risk. This flow of short-term capital between money markets occurs because investors seek equilibrium through arbitrage buying and selling. If investors can earn 6 percent interest per year in Country X and 10 percent per year in Country Y, they will prefer to invest in Country Y, provided the inflation rate and risk are the same in both countries. Thus interest rates and exchange rates adjust until the foreign exchange market and the money market reach equilibrium. This interplay between interest-rate differentials and exchange rates is called the interest rate parity theory.

Balance of Payments The term balance of payments refers to a system of government accounts that catalogues the flow of economic transactions between the residents of one country and the residents of other countries. (The balance of payment statement for the United States is prepared by the U.S. Department of Commerce quarterly and annually.) It resembles the cash flow statement presented in Part 6 of this analysis and tracks the country's exports and imports as well as the flow of capital and gifts. When a country sells (exports) more goods and services to foreign countries than it purchases (imports), it will have a surplus in its balance of trade.

Government Policies A national government may, through its central bank, intervene in the foreign exchange market, buying and selling currencies as it sees fit to support the value of its currency relative to others. Sometimes a given country may deliberately pursue a policy of maintaining an undervalued currency in order to promote cheap exports. In some countries the currency values are set by government decree. Even in some free market countries, the central banks fix the exchange rate, subject to periodic review and adjustment. Some nations affect the foreign exchange rate indirectly by restricting the flow of funds into and out of the country. Monetary and fiscal policies also affect the currency value in foreign exchange markets. For example, expansionary monetary policy and excessive government spending are primary causes of inflation, and the continual use of such policies eventually reduces the value of the country's currency.

Other Factors A pronounced and extended stock market rally in a country attracts investment capital from other countries, thus creating a huge demand by foreigners for that country's currency. This increased demand is expected to increase the value of that currency. Similarly a significant drop in demand for a country's principal exports worldwide is expected to result in a corresponding decline in the value of its currency. Political turmoil in a country often drive capital out of the country into stable countries. A mass exodus of capital, due to the fear of political risk, undermines the value of a country's currency in the foreign exchange market. Also, widespread labor strikes that may appear to weaken the nation's economy will depress its currency value.

Although a wide variety of factors that can influence exchange rates have been discussed, a few words of caution are in order. All of these variables will not necessarily influence all currencies to the same degree. Some factors may have an overriding influence on one currency's value, while their influence on another currency may be negligible at that time. 

Spot Rates and Forward Rates

When you look into a major financial publication, you will discover that two exchange rates exist simultaneously for most major currencies---the spot rate and the forward rate. The spot rate for a currency is the exchange rate at which the currency is traded for immediate delivery. For example, you walk into a local commercial bank and ask for Swiss francs. The banker will indicate the rate at which the frank is selling, say SF 1.35/$. If you like the rate, you buy 1,354.60 francs with $1,000 and walk out the door. This is a spot market transaction at the retail level. The trading of currencies for future delivery is called a forward market transaction. Suppose IBM Corporation expects to receive SF 135,340 from a Swiss customer in 30 days. It is not certain, however, what these franks will be worth in dollars in 30 days. To eliminate this uncertainty, IBM calls a bank and offers to sell SF 130,340 for U.S. dollars in 30 days. In their negotiation the two parties may agree on an exchange rate of SF 1.3534/$. This is the same as $0.7389/SF. The 1.3534 quote is in Swiss francs per dollar. The reciprocal or .7389 is in dollars per Swiss franc.

Since the exchange rate is established for future delivery, it is a forward rate. After 30 days IBM delivers SF 130,340 to the bank and receives $100,000.

The forward exchange rate of a currency is slightly different from the spot rate prevailing at that time. Since the forward rate deals with a future time, the expectations regarding the future value of that currency are reflected in the forward rate. Forward rates may be greater than the current spot rate (premium) or less than the current spot rate (discount). The discount or premium is usually expressed as an annualized percentage deviation from the spot rate. The percentage discount or premium is computed with the following formula:

Formula 1

The spot forward transactions are said to occur in the over-the-counter market. Foreign currency dealers (usual a large commercial banks) and their customers (importers, exporters, investors, multinational firms, and so on) negotiate the exchange rate, the length of the forward contract, and the commission in a mutually agreeable fashion. Although the length of a typical forward contract may generally vary between 1 months and 6 months, contracts for longer maturities are not uncommon. The dealers, however, may require higher returns for longer contracts.

*MAIN SOURCE: BLOCK & HIRT, 2005, FOUNDATIONS OF FINANCIAL MANAGEMENT, 11TH ED., PP. 607-612* 

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Foundations of Financial Management: An Analysis (Part 81)

It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy. 

George Lorimer

International Financial Management

(Part A)

by

Charles Lamson

Today the world economy is more integrated than ever, and nations are dependent on one another for many valuable and scarce resources. This growing interdependence necessitates the development of sound international business relations, which will enhance the prospects for future international cooperation and understanding. It is virtually impossible for any country to isolate itself from the impact of international developments in an integrated world economy. 

The capital markets are integrated and world events such as a currency crisis, government defaults on sovereign debt, terrorism, or the COVID 19 crisis can cause stock and bond markets to suffer emotional declines.

Even when stock and bond markets are relatively stable and free of crisis, companies will have to pay attention to the currency markets. These currency markets impact imports and exports between countries and therefore affect sales and earnings of all international companies. 

The next few posts deal with the dimensions of doing business worldwide. Here, we will provide a basis for understanding the complexities of international financial decisions. Such an understanding is important for anyone involved in international transactions.

The following section describes the international business firm and its environment. Then, in the last few posts of this analysis we examine foreign exchange rates and the variables influencing foreign currency values and strategies for dealing with foreign exchange risk. Finally, we discuss international financing sources, including the Eurodollar market, the Eurobond market, and foreign equity markets.

The Multinational Corporation: Nature and Environment

The focus of international financial management has been the multinational corporation (MNC). One might ask, just what is a multinational corporation? Some definitions of a multinational corporation require that a minimum percentage (often 30% or more) of a firm's business activities be carried on outside its national borders. For our understanding, however, a firm doing business across its national borders is considered a multinational enterprise. Multinational corporations can take several forms. Four are briefly examined.

Exporter An MNC could produce a product domestically and export some of that production to one or more foreign markets. This is, perhaps, the least risky method---reaping the benefits of foreign demand without committing any long-term investment to that foreign country.

Licensing Agreement A firm with exporting operations may get into trouble when a foreign government imposes or substantially raises an import to the level at which the exporter cannot compete effectively with the local domestic manufacturers. The foreign government may even ban all imports at times. When this happens the exporting firm may grant a license to an independent local producer to use the firm's technology in return for a license fee or a royalty. In essence, then, the MNC will be exporting technology, rather than the product, to that foreign country.

Joint Venture As an alternative to licensing, the MNC may establish a joint venture with a local foreign manufacturer. The legal, political, and economic environments around the globe are more conducive to the joint venture arrangement than any of the other modes of operation. Historical evidence also suggests that a joint venture with a local entrepreneur exposes the firm to the least amount of political risk. This position is preferred by most business firms and by foreign governments as well.

Fully Owned Foreign Subsidiary Although the joint venture form is desirable for many reasons, it may be hard to find a willing and cooperative local entrepreneur with sufficient capital to participate. Under these conditions the MNC may have to go it alone. For political reasons, however, a wholly-owned foreign subsidiary is becoming more of a rarity. The reader must keep in mind that whenever we mention a foreign affiliate in the ensuing discussion, it could be a joint venture or a fully owned subsidiary.

As the firm crosses its national borders, it faces an environment that is riskier and more complex than its domestic surroundings. Sometimes the social and political environment can be hostile. Despite these difficult changes, foreign affiliates often are more profitable than domestic businesses. A purely domestic firm faces several basic risks, such as the risk related to maintaining sales and market share, the financial risk of too much leverage, the risk of a poor equity market, and so on. In addition to these types of risks, the foreign affiliate is exposed to foreign exchange risk and political risk. While the foreign affiliate experiences a larger amount of risk than a domestic firm, it actually lowers the portfolio risk of its parent corporation by stabilizing the combined operating cash flows for the MNC. This risk reduction occurs because foreign and domestic economies are less than perfectly correlated.

Foreign business operations are more complex because the host country's economy may be different from the domestic economy. The rate of inflation in many foreign countries is likely to be higher than in the United States. The rules of taxation are different. The structure and operation of financial markets and institutions also vary from country to country, as do financial policies and practices. The presence of a foreign affiliate benefits the host country's economy. Foreign affiliates have been a decisive factor in shaping the pattern of trade, investment, and the flow of technology between nations. They can have a significant positive impact on a host country's economic growth, employment, trade, and balance of payments. This positive contribution, however, is occasionally overshadowed by allegations of wrongdoing. For example, some host countries have charged that foreign affiliates subverted their governments and caused instability of their currencies. The less-developed countries (LDCs) have, at times, alleged that foreign businesses exploit their labor with low wages.

The multinational companies are also under constant criticism in their home countries where labor unions charge the MNCs with exporting jobs, capital and technology to foreign nations while avoiding their fair share of taxes. Despite all these criticisms, multinational companies have managed to survive and prosper. The MNC is well positioned to take advantage of imperfections in the global markets. Furthermore, since current global resource distribution favors the MNC's survival and growth, it may be concluded that the multinational corporation is here to stay.

*MAIN SOURCE: BLOCK & HIRT, 2005, FOUNDATIONS OF FINANCIAL MANAGEMENT, 11TH ED., PP. 603-607*

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