This paper focuses on the conditions under which banks are subject to currency and country risks on their dollar-denominated loans to foreign firms and governments. We conclude that currency risk is a function of the rates of domestic and foreign inflation, deviations from purchasing power parity, and the effect of these deviations on the firm's and the nation's dollar-equivalent cash flows. Country risk is largely determined by the variability of the nation's terms of trade and the government's willingness to allow the national economy to adjust rapidly to changing economic fortunes.

This paper focuses on the conditions under which banks are subject to currency and country risks on their dollar‐denominated loans to foreign firms and governments. We conclude that currency risk is a function of the rates of domestic and foreign inflation, deviations from purchasing power parity, and the effect of these deviations on the firm's and the nation's dollar‐equivalent cash flows. Country risk is largely determined by the variability of the nation's terms of trade and the government's willingness to allow the national economy to adjust rapidly to changing economic fortunes.

Introduction: Multinational Enterprise and Multinational Financial Management. PART ONE: ENVIRONMENT OF INTERNATIONAL FINANCIAL MANAGEMENT. The Determination of Exchange Rates. The International Monetary System. The Balance of Payments and International Economic Linkages. The Foreign Exchange Market. Currency Futures and Options Markets. Parity Conditions in International Finance and Currency Forecasting. PART TWO: FOREIGN EXCHANGE RISK MANAGEMENT. Measuring Accounting Exposure. Managing Accounting Exposure. Measuring Economic Exposure. Managing Economic Exposure. PART THREE: MULTINATIONAL WORKING CAPITAL MANAGEMENT. Financing Foreign Trade. Current Asset Management. Managing the Multinational Financial System. PART FOUR: FINANCING FOREIGN OPERATIONS. International Financing and International Financial Markets. Special Financing Vehicles. International Banking Trends and Strategies. The Cost of Capital for Foreign Investments. PART FIVE: FOREIGN INVESTMENT ANALYSIS. International Portfolio Investment. Corporate Strategy and Foreign Direct Investment. Capital Budgeting for the Multinational Corporation. The Measurement and Management of Political Risk. Glossary of Key Words and Terms in International Finance.