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• About the Author
• Contents at a Glance
• Table of Contents
• Introduction
• About This Book
• Conventions Used in This Book
• What You Are Not to Read
• Foolish Assumptions
• How This Book Is Organized
• Icons Used in This Book
• Where to Go from Here
• Part I: Getting Started with International Finance
• Chapter 1: Money Makes the World Go ’Round
• Checking Out Definitions and Calculations
• Finding Out What Determines (Or Changes) Exchange Rates
• Getting to the Long and Short of It
• Answering Questions about the System: Fixed, Flexible, or Pegged?
• Gaining Insight into the Do’s and Don’ts of International Finance
• Looking at Finance Globally
• Chapter 2: Mastering the Basics of International Finance
• Making the Exchange: Exchange Rates
• Taking on Different Exchange Rates
• Tackling Terminology: Changes in Exchange Rates
• Grasping Exchange Rate Conversions
• Calculating Cross Rates
• Figuring the Bid–Ask Spread
• Chapter 3: Buy, Sell, Risk! Users of Foreign Exchange Markets
• Identifying Major Actors in Foreign Exchange Markets
• Watching Out for Risk
• Speculation: Taking a Risk to Gain Profit
• Chapter 4: It’s All about Change: Changes in the Exchange Rate
• Considering a Visual Approach to Changes in Exchange Rates
• Looking at How Macroeconomic Variables Affect Exchange Rates
• Uncovering Hidden Information in Graphs: Exchange Rate Regimes
• Part II: Determining the Exchange Rate
• Chapter 5: It’s a Matter of Demand and Supply
• Apples per Orange, Euros per Dollar: It’s All the Same
• Determining Exchange Rates through Supply and Demand
• Predicting Changes in the Euro–Dollar Exchange Rate
• Keeping It Straight: Using a Different Exchange Rate
• Chapter 6: Setting Up the Monetary Approach to Balance of Payments
• Discovering the MBOP’s Approach to Exchange Rates
• Explaining the Money Market
• Taking On the Foreign Exchange Market
• Combining the Money Market with the Foreign Exchange Market
• Keeping It Straight: What Happens When You Use a Different Exchange Rate?
• Chapter 7: Predicting Changes in Exchange Rates Based on the MBOP
• Applying Real Shocks to MBOP
• Applying Nominal Shocks to MBOP
• Keeping It Straight: What Happens When We Use a Different Exchange Rate?
• Comparing Predictions of MBOP and the Demand–Supply Model
• Part III: Understanding Long-Term Concepts and Short-Term Risks
• Chapter 8: Your Best Guess: The Interest Rate Parity (IRP)
• Tackling the Basics of Interest Rate Parity (IRP)
• Working with the IRP
• Speculation Using the Covered Interest Arbitrage
• Determining Whether the IRP Holds
• Chapter 9: Taking a Bite Out of the Purchasing Power Parity (PPP)
• Getting a Primer on the Purchasing Power Parity (PPP)
• Working with the PPP
• Deciding Whether the PPP Holds
• Chapter 10: Minimizing the FX Risk: FX Derivatives
• Checking Out FX Derivatives
• Moving to Forward Contracts
• Looking at Futures Contracts
• Just Say “No” to Obligation! Looking at Options
• Part IV: Conducting a Background Check: Changes in Currency through the Years
• Chapter 11: Macroeconomics of Monetary Systems and the Pre-Bretton Woods Era
• Reviewing Types of Money through the Ages
• Examining the Relationship between Types of Money and Exchange Rate Regimes
• Understanding the Macroeconomics of the Metallic Standard
• Discovering the Monetary System of the Pre–Bretton Woods Era
• Chapter 12: Bretton Woods Era (1944–1973)
• Gaining Insight into the Bretton Woods System
• Attending the Bretton Woods Conference in 1944
• Judging the Outcome of the Bretton Woods Conference
• Marking the Decline of the Bretton Woods System
• Chapter 13: Exchange Rate Regimes in the Post–Bretton Woods Era
• Using Floating Exchange Rates
• Unilaterally Pegged Exchange Rates
• Dealing with Currency Crises and the IMF
• Mirror, Mirror: Deciding Which International Monetary System Is Better
• Chapter 14: The Euro: A Study in Common Currency
• Introducing the Euro
• Walking the Stages of European Monetary Integration
• Getting the Lowdown: Euro’s Report Card
• Finding What the Future Holds for the Euro
• Part V: The Part of Tens
• Chapter 15: Ten Important Points to Remember about International Finance
• Catching Up on What a Relative Price Is
• Finding Out What Makes a Currency Depreciate
• Keeping in Mind That Higher Nominal Interest Rates Imply Higher Inflation Rates
• Paying Attention to Interest Rate Differentials When Investing in Foreign Debt Securities
• Uncovering the Two Parts of Returns When Investing in Foreign Debt Securities
• Adjusting Your Expectations As Information Changes
• Appreciating the Size of Foreign Exchange Markets
• Using Foreign Exchange Derivatives for the Right Reason
• Noting That Going Back to the Gold Standard Means Dealing with Fixed Exchange Rates
• Realizing the Value of Policy Coordination in a Common Currency
• Chapter 16: Ten Common Myths in International Finance
• Expecting to Make Big Bucks Every Time You Speculate in Foreign Exchange Markets
• Thinking You Can Buy a Big Mac in Paris at the Same Price as in Your Hometown
• Ignoring Policymakers When It Comes to Exchange Rates
• Giving Up on Theory Too Easily
• Forgetting about High Short-Term Volatility in Exchange Rates
• Thinking that All Changes in the Exchange Rate Are Traceable to Changes in Fundamentals
• Thinking about Foreign Exchange Markets as Just Another Market
• Assuming that Central Bank Interventions Are Meaningless
• Thinking that Pegged Exchange Rates Are a Great Idea
• Being Nostalgic about the Good Old Gold Standard Days
• Appendix: Famous Puzzles in International Finance
• The Home Bias in Trade Puzzle
• The Home Bias in Equity Puzzle
• The Feldstein–Horioka Puzzle
• The Consumption Correlation Puzzle
• The Exchange Rate Disconnect Puzzle
• The Purchasing Power Puzzle
• Market Imperfection Explanations for Exchange Rate Puzzles
• Index