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MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE

INTERNATIONAL FINANCE

TRAINING MANUAL

5th Edition, revised and enlarged

Edited by Yuriy Kozak

Kiev ? Katowice Kiev ? Chisinau ? Katowice ? New York ? Tbilisi

CUL ? 2015

ISBN 978-611-01-0687-0

International finance: training manual , 5th edition, revised and enlarged . ? Edited by Yuriy Kozak . ? Kiev ? Chisinau ? Katowice ? New York ? Tbilisi : CUL , 2015 ? 287 p.

Authors: Y. Kozak (Ukraine ), G. Shlemovich (USA ),T. Sporek (Poland), . Gribincea (Moldova), S. Smyczek (Poland), . Shengelia (Georgia), J. Szoltysek (Poland), N. Logvinova (Ukraine), E. Voronova (Ukraine), V. sipov (Ukraine), N. Prytula (Ukraine), A. Kozak (Poland), M. Kochevoy (Ukraine), O. Zakharchenko (Ukraine), A. Zborovska (Ukraine), D. Aliabieva (Poland).

ISBN 978-611-01-0687-0 Based on the essence of international finance and development rules of the global financial and monetary system, functioning of the international financial markets in the context of globalization, international taxation and specifics of international financial management are reviewed. For students and academics.

? Yuriy Kozak, 2015 ? CUL, 2015

BRIEF CONTENTS

PREFACE...................................................................................... 9

PART I. INTERNATIONAL FINANCE IN THE WORLD MONETARY AND FINANCIAL ENVIRONMENT....................................................

11

Chapter 1. International finance: basic concepts...........................

11

Chapter 2. The global financial system.................................................. 19

Chapter 3. Global monetary system and the principles of its functioning......... 32

Chapter 4. Features of modern world monetary and financial crises.................. 57

PART 2. INTERNATIONAL SETTLEMENTS AS THE FORM OF MONETARY AND FINANCIAL RELATIONS.......................................

67

Chapter 5. International settlements: essence and forms............................. 67 Chapter 6. International payment systems............................................... 72

PART 3. THE BALANCE OF PAYMENTS: THEORY AND STATE 77 REGULATION.........................................................

Chapter 7. The theory of the balance of payments .................................... 77 Chapter 8. State regulation of the balance of payments .............................. 88

PART 4. INTERNATIONAL FINANCIAL MARKETS............................. 93

Chapter 9. International foreign exchange market.................................... 93 Chapter 10. The international credit market ........................................... 110 Chapter 11. International securities market............................................. 130

PART 5. INTERNATIONAL TAXATION .............................................. 182

Chapter 12. Features of international taxation......................................... 182

Chapter 13. Offshore centers in the system of international taxation............... 199

Chapter 14. Money laundering ......................................................

209

PART 6. INTERNATIONAL FINANCIAL MANAGEMENT..................... 236

Chapter 15. The essence of international financial management ................... 236 Chapter 16. The general directions of international financial management...... 247 Chapter 17. Risks in the international activity of a firm .............................. 270 BIBLIOGRAPHY............................................................................. 285

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CONTENTS

PREFACE...................................................................................... 9

PART 1. INTERNATIONAL FINANCE IN THE WORLD MONETARY AND FINANCIAL ENVIRONMENT....................................................

11

Chapter 1. International finance: basic concepts........................................... 11 1.1. The economic nature of the international finance...................................... 11 1.2. International finance flows................................................................ 13 1.3. The world financial market.............................................................. 16

Chapter 2. The global financial system.................................................. 19

2.1. Structure and participants of the global financial system............................. 19

2.2. Functioning of the global financial system in the globalization process......

20

2.3. The main global financial centers....................................................... 23

2.3.1. Financial centers in developed countries............................................. 24

2.3.2. Financial centers of developing countries............................................ 26

2.4. Offshore zones in the system of the global financial centers........................ 29

Chapter 3. Global monetary system and the principles of its functioning........ 32 3.1. Concept and types of currency........................................................... 32 3.2. Convertibility of currency............................................................... 33 3.3. Exchange rate: the nature, types and regimes....................................... 35 3.3.1. Types of the exchange rates............................................................. 36 3.3.2. Cross-rate and trilateral arbitration.................................................... 38 3.3.3. The regimes of the exchange rates................................................... 39 3.4. The equilibrium exchange rate ......................................................... 42 3.4.1. Demand and supply of foreign currency............................................. 42 3.4.2. The dependence of prices on the change of exchange rate ....................... 43 3.5. Forecasting the exchange rate............................................................ 43 3.5.1. Factors influencing the exchange rate................................................ 43 3.5.2. Models of the determination of the exchange rate................................. 45 3.6. The essence of monetary policy, its forms ............................................ 47 3.7. Evolution of the world monetary system..................................................... 50 3.7.1. Gold and gold exchange standard.................................................... 50 3.7.2. Bretton-Woods monetary system...................................................... 52 3.7.3. Jamaica monetary system.............................................................. 54

Chapter 4. Features of modern world monetary and financial crises.................. 57 4.1. Essence and types of financial crises................................................... 57 4.2. Anti-crisis measures at the national and international levels........................... 62

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PART 2. INTERNATIONAL SETTLEMENTS AS THE FORM OF MONETARY AND FINANCIAL RELATIONS....................................... 67

Chapter 5. International settlements: essence and forms............................. 67 5.1. The essence of international settlements................................................ 67 5.2. Basic forms of the international payments.............................................. 70

Chapter 6. International payment systems............................................... 72 6.1. Basic principles of payment systems functioning..................................... 72 6.2. The types of international payment systems .......................................... 74

PART 3. THE BALANCE OF PAYMENTS: THEORY AND STATE REGULATION 77

Chapter 7. The theory of the balance of payments .................................... 77 7.1. The essence and principles of the balance of payments ............................. 77 7.2. The structure of the balance of payments ............................................. 81 7.2.1. Items of current account ............................................................... 82 7.2.2. Items of capital and financial accounts................................................ 83 7.3. Balancing items of BoP ................................................................... 86

Chapter 8. State regulation of the balance of payments ............................... 88 8.1. The concept of economic equilibrium of balance of payments..................... 88 8.2. The essence of state regulation of BoP ............................................... 90 8.3. The international investment position of the country................................. 91

PART 4. INTERNATIONAL FINANCIAL MARKETS............................. 93

Chapter 9. International foreign exchange market...................................... 93 9.1. The essence of the international foreign exchange market ......................... 93 9.2. The transactions on the international foreign exchange market .................... 95 9.2.1. Spot transactions ....................................................................... 95 9.2.2. Forward contracts ....................................................................... 96 9.2.3. Currency swaps ......................................................................... 97 9.2.4. Currency futures......................................................................... 98 9.2.5. Currency options........................................................................ 99 9.2.6. Speculative currency operations....................................................... 100 9.2.7. Arbitrage operations.................................................................... 102 9.3. The government interference in the activity of currency market .................. 104 9.4. The Eurocurrency Market ............................................................... 106

Chapter 10. The international credit market ........................................... 110 10.1. The essence of the international credit market ...................................... 110 10.1.1. The place of the international credit market on international debt market.... 110

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10.1.2. The forms of international lending ............................................... 113

10.2. The monetary and financial conditions of the international credit ............... 116

10.3. The Eurocredit market.................................................................. 118

10.4. The international official assistance to developing countries ? non-market mechanism of the redistribution of financial resources ..................................

120

10.5. International debt ......................................................................... 123

10.5.1. The causes of international debt ..................................................... 123

10.5.2. The concept of external debt and its restructuring ................................ 127

Chapter 11. International securities market............................................. 130

11.1. International securities market: the concept and trends of development...

130

11.1.1. Investment capital, its suppliers and consumers................................... 131

11.1.2. Intermediaries on the security market............................................... 134

11.1.3. Investment risk........................................................................ 135

11.1.4. Stages and development trends of world stock market .......................... 136

11.2. The classification of securities......................................................... 140

11.3. International market of property titles ............................................. 141

11.3.1. International equity market: market of foreign equities and euroequities............. 141

11.3.2. International market of depositary receipts......................................... 148

11.4. International bond market............................................................... 152

11.4.1. Foreign bonds market................................................................. 153

11.4.2. Eurobonds market..................................................................... 154

11.5. The international market of financial derivatives................................... 158

11.6. Primary and secondary securities markets ......................................... 164

11.6.1. The essence of the primary securities market..................................... 164

11.6.2. The characteristics of the secondary securities market............................... 166

11.6.3. Basic indicators of activity in stock market........................................ 173

11.6.4. Determining the market value of shares............................................. 175

11.6.5. Determining the value of bonds..................................................... 179

PART 5. INTERNATIONAL TAXATION .............................................. 182

Chapter 12. Features of international taxation......................................... 182

12.1. General features and specifics of the world modern tax systems...................... 182

12.1.1. Taxation in industrialized countries................................................. 183

12.1.2. Taxes in transitive economies......................................................... 187

12.2. International double taxation and the ways of its regulation .........

190

12.2.1. International double taxation relief agreement as a tool for tax minimization.......... 191

12.2.2"Tax Treaty Shopping".................................................................. 194

Chapter 13. Offshore centers in the system of international taxation.............. 199 13.1. Tax evasion............................................................................... 199 13.2. Methods that limit financial transactions through offshore centers.................. 203 13.2.1. Measures accepted on the international scale...................................... 203

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13.2.2. Domestic anti-offshore regulation................................................... 205

Chapter 14. Money laundering ............................................................... 209

14.1. The concept of "dirty" money. Money laundering as the process................ 209

14.1.1. The definition of "money laundering" ............................................. 209

14.1.2. The organization of money laundering procedure: stages and methods.............. 212

14.2. The recognition of operations related to money laundering....................... 225

14.2.1. The collection and the storage of information..................................... 225

14.2.2. Data processing ....................................................................... 225

14.2.3. Monitoring............................................................................... 227

14.2.4. The completion of recognition....................................................... 227

14.3. The main directions of combating money laundering .............................. 228

14.3.1. International cooperation in dealing with money laundering: the establishment of legal framework............................................................

228

14.3.2. Practical measures, implemented on the international scale..................... 230

14.3.3. The functions and activity of the FATF............................................. 232

14.3.4. The problems of struggle against organized crime and money laundering in

offshore enters................................................................................. 233

PART 6. INTERNATIONAL FINANCIAL MANAGEMENT..................... 236

Chapter 15. The essence of international financial management.................... 236

15.1. The concept and basic functions of international financial management........ 236

15.2. The specifics of the external environment of financial decision-making ....... 237

15.3. The financial management of transnational corporations. The features of investment activity ............................................................................

240

Chapter 16. The general directions of international financial management...... 247 16.1. Capital budgeting ........................................................................ 247 16.1.1. Criteria for evaluating the economic efficiency of investment projects....... 247 16.1.2 The evaluation of the financial position of the company.......................... 248 16.2 Securities portfolio management .......................................................... 250 16.2.1. The diversification of the securities portfolio..................................... 250 16.2.2. Active and passive international portfolio management.......................... 253 16.3 The current capital policy ............................................................... 253 16.3.1. Cash management...................................................................... 254 16.3.2. The management of accounts receivable and payable ................. .......... 257 16.3.3. Stock management..................................................................... 257 16.4. Transnational financing.................................................................. 258 16.4.1. Short-term financing of TNC's foreign affiliates.................................. 258 16.4.2. Long-term financing of TNC's foreign affiliates.................................. 259 16.5. International trade financing............................................................ 260 16.5.1. The methods of financing exports and imports.................................... 260

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16.5.2. The state support of exports.......................................................... 263 16.6. Dividend policy of the corporation.................................................... 267 16.6.1. Passive and active dividend policy.................................................. 267 16.6.2. Payment of dividends................................................................. 268

Chapter 17. Risks of company's international activity................................ 270

17.1. Foreign exchange risk ................................................................. 270

17.1.1. The essence and types of currency risks............................................ 270

17.1.2. Methods of currency risk estimation................................................ 276

17.2. Risks of making decisions about foreign direct investment......................... 278

17.2.1. Risks arising from international investment issues................................ 279

17.2.2. Risks connected with alternative choice of correlation between different investment financing types .......................................................................

280

17.3. Political risk................................................................................ 282

BIBLIOGRAPHY............................................................................ 285

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