PART2:ExchangeRateBehavior
6:GOVERNMENTINFLUENCEONEXCHANGERATES 187
6-1ExchangeRateSystems,187
6-1aFixedExchangeRateSystem,187
6-1bFreelyFloatingExchangeRateSystem,189
6-1cManagedFloatExchangeRateSystem,190
6-1dPeggedExchangeRateSystem,191
6-1eDollarization,197
6-1fBlackMarketsforCurrencies,197
6-2ASingleEuropeanCurrency,198
6-2aMonetaryPolicyintheEurozone,198
6-2bImpactonFirmsintheEurozone,199
6-2cImpactonFinancialFlowsintheEurozone,199
6-2dImpactofEurozoneCountryCrisisonOtherEurozoneCountries,199
6-2eImpactofaCountryAbandoningtheEuro,202
6-3DirectIntervention,203
6-3aReasonsforDirectIntervention,203
6-3bTheDirectInterventionProcess,204
6-3cDirectInterventionasaPolicyTool,207
6-3dSpeculatingonDirectIntervention,208
6-4IndirectIntervention,209
6-4aGovernmentControlofInterestRates,209
6-4bGovernmentUseofForeignExchangeControls,210 Appendix6:GovernmentInterventionduringtheAsianCrisis,218
7:INTERNATIONALARBITRAGEANDINTERESTRATEPARITY
7-1LocationalArbitrage,227
7-1aGainsfromLocationalArbitrage,228
7-1bRealignmentduetoLocationalArbitrage,228
7-2TriangularArbitrage,229
7-2aGainsfromTriangularArbitrage,230
7-2bRealignmentduetoTriangularArbitrage,232
7-3CoveredInterestArbitrage,232
7-3aCoveredInterestArbitrageProcess,232
7-3bRealignmentduetoCoveredInterestArbitrage,234
7-3cArbitrageExampleWhenAccountingforSpreads,235
7-3dCoveredInterestArbitragebyNon-U.S.Investors,236
7-3eComparingDifferentTypesofArbitrage,236
7-4InterestRateParity(IRP),236
7-4aDerivationofInterestRateParity,237
7-4bDeterminingtheForwardPremium,238
7-4cGraphicAnalysisofInterestRateParity,240
7-4dHowtoTestWhetherInterestRateParityHolds,242
7-4eDoesInterestRateParityHold?,242
7-4fConsiderationsWhenAssessingInterestRateParity,243
7-5VariationinForwardPremiums,244
7-5aForwardPremiumsacrossMaturities,244
7-5bChangesinForwardPremiumsoverTime,245
8:RELATIONSHIPSAMONGINFLATION,INTERESTRATES, ANDEXCHANGERATES
8-1PurchasingPowerParity(PPP),257
8-1aInterpretationsofPurchasingPowerParity,257
8-1bRationalebehindRelativePPPTheory,258
8-1cDerivationofPurchasingPowerParity,258
8-1dUsingPPPtoEstimateExchangeRateEffects,259
8-1eGraphicAnalysisofPurchasingPowerParity,260
8-1fTestingthePurchasingPowerParityTheory,263
8-1gDoesPurchasingPowerParityExist?,265
8-2InternationalFisherEffect(IFE),266
8-2aDerivingaCountry’sExpectedInflationRate,266
8-2bEstimatingtheExpectedExchangeRateMovement,267
8-2cImplicationsoftheInternationalFisherEffect,267
8-2dDerivationoftheInternationalFisherEffect,270
8-2eGraphicAnalysisoftheInternationalFisherEffect,272
8-2fTestingtheInternationalFisherEffect,273
8-2gLimitationsoftheIFETheory,274
8-2hIFETheoryversusReality,275
8-2iComparisonofIRP,PPP,andIFETheories,275
Part2IntegrativeProblem:ExchangeRateBehavior,286 MidtermSelf-Exam,287
PART3:ExchangeRateRiskManagement
9:FORECASTINGEXCHANGERATES
9-1WhyFirmsForecastExchangeRates,297
9-2ForecastingTechniques,299
9-2aTechnicalForecasting,299
9-2bFundamentalForecasting,299
9-2cMarket-BasedForecasting,303
9-2dMixedForecasting,306
9-3AssessmentofForecastPerformance,307
9-3aMeasurementofForecastError,307
9-3bForecastErrorsamongTimeHorizons,308
9-3cForecastErrorsoverTimePeriods,308
9-3dForecastErrorsamongCurrencies,308
9-3eComparingForecastErrorsamongForecastTechniques,309
9-3fGraphicEvaluationofForecastBias,309
9-3gStatisticalTestofForecastBias,311
9-3hShiftsinForecastBiasoverTime,312
9-4AccountingforUncertaintySurroundingForecasts,312
9-4aSensitivityAnalysisAppliedtoFundamentalForecasting,313
9-4bIntervalForecasts,313
10:MEASURINGEXPOSURETOEXCHANGERATEFLUCTUATIONS
10-1RelevanceofExchangeRateRisk,325
10-2TransactionExposure,326
10-2aEstimating “Net” CashFlowsinEachCurrency,328
10-2bTransactionExposureofanMNC’sPortfolio,329
10-2cTransactionExposureBasedonValueatRisk,332
10-3EconomicExposure,335
10-3aExposuretoForeignCurrencyDepreciation,336
10-3bExposuretoForeignCurrencyAppreciation,337
10-3cMeasuringEconomicExposure,337
10-4TranslationExposure,340
10-4aDeterminantsofTranslationExposure,340
10-4bExposureofanMNC’sStockPricetoTranslationEffects,342
11:MANAGINGTRANSACTIONEXPOSURE
11-1PoliciesforHedgingTransactionExposure,355
11-1aHedgingMostoftheExposure,355
11-1bSelectiveHedging,355
11-2HedgingExposuretoPayables,356
11-2aForwardorFuturesHedgeonPayables,356
11-2bMoneyMarketHedgeonPayables,357
11-2cCallOptionHedgeonPayables,357
11-2dComparisonofTechniquesforHedgingPayables,360
11-2eEvaluatingPastDecisionsonHedgingPayables,363
11-3HedgingExposuretoReceivables,363
11-3aForwardorFuturesHedgeonReceivables,363
11-3bMoneyMarketHedgeonReceivables,364
11-3cPutOptionHedgeonReceivables,364
11-3dComparisonofTechniquesforHedgingReceivables,367
11-3eEvaluatingPastDecisionsonHedgingReceivables,370
11-3fSummaryofHedgingTechniques,370
11-4LimitationsofHedging,371
11-4aLimitationofHedginganUncertainPayment,371
11-4bLimitationofRepeatedShort-TermHedging,371
11-5AlternativeMethodstoReduceExchangeRateRisk,373 11-5aLeadingandLagging,374
11-5bCross-Hedging,374
11-5cCurrencyDiversification,374 Appendix11:NontraditionalHedgingTechniques,388
12:MANAGINGECONOMICEXPOSUREANDTRANSLATION EXPOSURE
12-1ManagingEconomicExposure,393
12-1aAssessingEconomicExposure,394
12-1bRestructuringtoReduceEconomicExposure,395
12-1cLimitationsofRestructuringIntendedtoReduceEconomicExposure,398
12-2ACaseStudyonHedgingEconomicExposure,398
12-2aSavorCo.’sAssessmentofEconomicExposure,398
12-2bPossibleStrategiesforHedgingEconomicExposure,400
12-3ManagingExposuretoFixedAssets,401
12-4ManagingTranslationExposure,402
12-4aHedgingTranslationExposurewithForwardContracts,403 12-4bLimitationsofHedgingTranslationExposure,403 Part3IntegrativeProblem:ExchangeRiskManagement,412
393
13:DIRECTFOREIGNINVESTMENT
13-1MotivesforDirectForeignInvestment,417 13-1aRevenue-RelatedMotives,417
13-1bCost-RelatedMotives,418
13-1cComparingBenefitsofDFIamongCountries,420 13-2BenefitsofInternationalDiversification,421
13-2aDiversificationAnalysisofInternationalProjects,422 13-2bDiversificationamongCountries,424
13-3HostGovernmentImpactonDFI,424
13-3aIncentivestoEncourageDFI,425 13-3bBarrierstoDFI,425
13-4AssessingPotentialDFI,427
13-4aACaseStudyofAssessingPotentialDFI,427
13-4bEvaluatingDFIOpportunitiesThatPasstheFirstScreen,429
14:MULTINATIONALCAPITALBUDGETING
14-1SubsidiaryversusParentPerspective,437
14-1aTaxDifferentials,437
14-1bRestrictionsonRemittedEarnings,438 14-1cExchangeRateMovements,438
14-1dSummaryofFactorsThatDistinguishtheParentPerspective,438
14-2InputforMultinationalCapitalBudgeting,439
14-3MultinationalCapitalBudgetingExample,441
14-3aBackground,441
14-3bAnalysis,442
14-4OtherFactorstoConsider,443
14-4aExchangeRateFluctuations,444
14-4bInflation,447
14-4cFinancingArrangement,447
14-4dBlockedFunds,450
14-4eUncertainSalvageValue,451
14-4fImpactofProjectonPrevailingCashFlows,452
14-4gHostGovernmentIncentives,453
14-4hRealOptions,453
14-5AdjustingProjectAssessmentforRisk,454
14-5aRisk-AdjustedDiscountRate,454
14-5bSensitivityAnalysis,454
14-5cSimulation,457
Appendix14:IncorporatingInternationalTaxLawinMultinational CapitalBudgeting,469
15:INTERNATIONALCORPORATEGOVERNANCEANDCONTROL
15-1InternationalCorporateGovernance,477
15-1aGovernancebyBoardMembers,477
15-1bGovernancebyInstitutionalInvestors,478
15-1cGovernancebyShareholderActivists,478
15-2InternationalCorporateControl,479
15-2aMotivesforInternationalAcquisitions,479
15-2bTrendsinInternationalAcquisitions,479
15-2cBarrierstoInternationalCorporateControl,480
15-2dModelforValuingaForeignTarget,481
15-3FactorsAffectingTargetValuation,482
15-3aTarget-SpecificFactors,482
15-3bCountry-SpecificFactors,483
15-4ACaseStudyofValuingaForeignTarget,484
15-4aInternationalScreeningProcess,484
15-4bEstimatingtheTarget’sValue,485
15-4cUncertaintySurroundingtheTarget’sValuation,487
15-4dChangesinMarketValuationofTargetoverTime,487
15-5DisparityinForeignTargetValuations,488
15-5aExpectedCashFlowsoftheForeignTarget,488
15-5bExchangeRateEffectsonRemittedEarnings,489
15-5cRequiredReturnofAcquirer,489
15-6OtherCorporateControlDecisions,490
15-6aInternationalPartialAcquisitions,490
15-6bInternationalAcquisitionsofPrivatizedBusinesses,490
15-6cInternationalDivestitures,491
15-7CorporateControlDecisionsasRealOptions,492
15-7aCallOptiononRealAssets,492
15-7bPutOptiononRealAssets,493
16:COUNTRYRISKANALYSIS
16-1CountryRiskCharacteristics,503
16-1aPoliticalRiskCharacteristics,503
16-1bFinancialRiskCharacteristics,506
16-2MeasuringCountryRisk,507
16-2aTechniquesforAssessingCountryRisk,508
16-2bDerivingaCountryRiskRating,509
16-2cComparingRiskRatingsamongCountries,511
16-3IncorporatingRiskinCapitalBudgeting,512
16-3aAdjustmentoftheDiscountRate,512
16-3bAdjustmentoftheEstimatedCashFlows,512
16-3cAnalysisofExistingProjects,515
16-4PreventingHostGovernmentTakeovers,516
16-4aUseaShort-TermHorizon,516
16-4bRelyonUniqueSuppliesorTechnology,516
16-4cHireLocalLabor,516
16-4dBorrowLocalFunds,516
16-4ePurchaseInsurance,517
16-4fUseProjectFinance,517
17:MULTINATIONALCAPITALSTRUCTUREANDCOSTOFCAPITAL
17-1ComponentsofCapital,527
17-1aRetainedEarnings,527
17-1bSourcesofDebt,528
17-1cExternalSourcesofEquity,529
17-2TheMNC’sCapitalStructureDecision,530
17-2aInfluenceofCorporateCharacteristics,531
17-2bInfluenceofHostCountryCharacteristics,531
17-2cResponsetoChangingCountryCharacteristics,532
503
17-3SubsidiaryversusParentCapitalStructureDecisions,533 17-3aImpactofIncreasedSubsidiaryDebtFinancing,533 17-3bImpactofReducedSubsidiaryDebtFinancing,533 17-3cLimitationsinOffsettingaSubsidiary’sLeverage,534 17-4MultinationalCostofCapital,534
17-4aMNC’sCostofDebt,534
17-4bMNC’sCostofEquity,534
17-4cEstimatinganMNC’sCostofCapital,535 17-4dComparingCostsofDebtandEquity,535 17-4eCostofCapitalforMNCsversusDomesticFirms,536 17-4fCost-of-EquityComparisonUsingtheCAPM,537 17-5CostofCapitalacrossCountries,539
17-5aCountryDifferencesintheCostofDebt,540 17-5bCountryDifferencesintheCostofEquity,541
18:LONG-TERMDEBTFINANCING
18-1DebtDenominationDecisionofForeignSubsidiaries,551 18-1aForeignSubsidiaryBorrowsItsLocalCurrency,551 18-1bForeignSubsidiaryBorrowsDollars,553 18-2DebtDenominationAnalysis:ACaseStudy,553
18-2aIdentifyingDebtDenominationAlternatives,553 18-2bAnalyzingDebtDenominationAlternatives,554 18-3LoansFacilitateFinancing,555
18-3aUsingCurrencySwaps,555
18-3bUsingParallelLoans,556 18-4DebtMaturityDecision,559
18-4aAssessmentoftheYieldCurve,559
18-4bFinancingCostsofLoanswithDifferentMaturities,559 18-5FixedversusFloatingRateDebtDecision,560
18-5aFinancingCostsofFixedversusFloatingRateLoans,560 18-5bHedgingInterestPaymentswithInterestRateSwaps,561 Part4IntegrativeProblem:Long-TermAssetandLiabilityManagement,572
19:FINANCINGINTERNATIONALTRADE
19-1PaymentMethodsforInternationalTrade,577
19-1aPrepayment,577
19-1bLettersofCredit,578
19-1cDrafts,580
19-1dConsignment,581
19-1eOpenAccount,581
19-1fImpactoftheCreditCrisisonPaymentMethods,581 19-2TradeFinanceMethods,581
19-2aAccountsReceivableFinancing,582
19-2bFactoring,582
19-2cLettersofCredit(L/Cs),583
19-2dBanker’sAcceptances,583
19-2eMedium-TermCapitalGoodsFinancing(Forfaiting),586
19-2fCountertrade,586
19-3AgenciesThatFacilitateInternationalTrade,587
19-3aExport-ImportBankoftheUnitedStates,587
19-3bPrivateExportFundingCorporation,589
19-3cOverseasPrivateInvestmentCorporation,589
20:SHORT-TERMFINANCING 595
20-1SourcesofForeignFinancing,595
20-1aInternalShort-TermFinancing,595
20-1bExternalShort-TermFinancing,596
20-1cAccesstoFundingduringaCreditCrisis,596
20-2FinancingwithaForeignCurrency,596
20-2aMotiveforFinancingwithaForeignCurrency,597
20-2bPotentialCostSavingsfromFinancingwithaForeignCurrency,597
20-2cRiskofFinancingwithaForeignCurrency,598
20-2dHedgingtheForeignCurrencyBorrowed,599
20-2eRelianceontheForwardRateforForecasting,600
20-2fUseofProbabilityDistributionstoEnhancetheFinancingDecision,601
20-3FinancingwithaPortfolioofCurrencies,602
21:INTERNATIONALCASHMANAGEMENT
21-1MultinationalWorkingCapitalManagement,611
21-1aSubsidiaryExpenses,611
21-1bSubsidiaryRevenue,612
21-1cSubsidiaryDividendPayments,612
21-1dSubsidiaryLiquidityManagement,612
21-2CentralizedCashManagement,613
21-2aAccommodatingCashShortages,614
21-3OptimizingCashFlows,614
21-3aAcceleratingCashInflows,614
21-3bMinimizingCurrencyConversionCosts,615
21-3cManagingBlockedFunds,617
21-3dManagingIntersubsidiaryCashTransfers,617
21-3eComplicationsinOptimizingCashFlow,617
21-4InvestingExcessCash,618
21-4aBenefitsofInvestinginaForeignCurrency,618
21-4bRiskofInvestinginaForeignCurrency,619
21-4cHedgingtheInvestmentinaForeignCurrency,620
21-4dBreak-EvenPointfromInvestinginaForeignCurrency,621
21-4eUsingaProbabilityDistributiontoEnhancetheInvestmentDecision,622
21-4fInvestinginaPortfolioofCurrencies,623 21-4gDynamicHedging,625
Part5IntegrativeProblem:Short-TermAssetandLiabilityManagement,631 FinalSelf-Exam,633
AppendixA:AnswerstoSelf-TestQuestions,643
AppendixB:SupplementalCases,656
AppendixC:UsingExceltoConductAnalysis,676
AppendixD:InternationalInvestingProject,684
AppendixE:DiscussionintheBoardroom,687
AppendixF:UseofBitcointoConductInternationalTransactions,695 Glossary,697 Index,705
Preface
Businessesevolveintomultinationalcorporations(MNCs)sothattheycancapitalizeon internationalopportunities.Theirfinancialmanagersmustbeabletoassesstheinternationalenvironment,recognizeopportunities,implementstrategies,assessexposureto risk,andmanagethatrisk.TheMNCsmostcapableofrespondingtochangesintheinternationalfinancialenvironmentwillberewarded.ThesamecanbesaidforthestudentstodaywhomaybecomethefuturemanagersofMNCs.
IntendedMarket
InternationalFinancialManagement, 13thEdition,presumesanunderstandingofbasic corporatefinance.Itissuitableforbothundergraduateandmaster’slevelcoursesininternationalfinancialmanagement.Formaster’scourses,themorechallengingquestions, problems,andcasesineachchapterarerecommended,alongwithspecialprojects.
OrganizationoftheText
InternationalFinancialManagement, 13thEdition,isorganizedtoprovideabackground ontheinternationalenvironmentandthentofocusonthemanagerialaspectsfroma corporateperspective.ManagersofMNCswillneedtounderstandtheenvironmentbeforetheycanmanagewithinit.
Thefirsttwopartsofthetextestablishthenecessarymacroeconomicframework.Part1 (Chapters1through5)introducesthemajormarketsthatfacilitateinternationalbusiness. Part2(Chapters6through8)describesrelationshipsbetweenexchangeratesandeconomicvariablesandexplainstheforcesthatinfluencetheserelationships.
Therestofthetextdevelopsamicroeconomicframeworkwithafocusonthemanagerialaspectsofinternationalfinancialmanagement.Part3 (Chapters9through12)explains themeasurementandmanagementofexchangeraterisk.Part4(Chapters13through18) describesthemanagementoflong-termassetsandliabilities,includingmotivesfordirect foreigninvestment,multinationalcapitalbudgeting,countryriskanalysis,andcapitalstructuredecisions.Part5(Chapters19through21)concentratesontheMNC’smanagementof short-termassetsandliabilities,includingtradefinancing,othershort-termfinancing,and internationalcashmanagement.
Eachchapterisself-containedsothatprofessorscanuseclassroomtimetofocuson themorecomprehensivetopicswhilerelyingonthetexttocoverotherconcepts.The managementoflong-termassets(Chapters13 through16ondirectforeigninvestment, multinationalcapitalbudgeting,multinationalrestructuring,andcountryriskanalysis)is coveredbeforethemanagementoflong-termliabilities(Chapters17and18oncapital structureanddebtfinancing)becausethefinancingdecisionsdependontheinvestment decisions.Nevertheless,theseconceptsareexplainedwithanemphasisonhowthemanagementoflong-termassetsandlong-termliabilitiesisintegrated.Forexample,multinationalcapitalbudgetinganalysisdemonstrateshowthefeasibilityofaforeignproject maydependonthefinancingmix.Someprofessorsmayprefertoteachthechapterson managinglong-termliabilitiespriortoteachingthechaptersonmanaginglong-term assets.
Thestrategicaspects,suchasmotivesfordirectforeigninvestment,arecoveredbefore theoperationalaspects,suchasshort-termfinancingorinvestment.Forprofessorswho prefertocovertheMNC’smanagementofshort-termassetsandliabilitiesbeforethe managementoflong-termassetsandliabilities,thepartscanberearrangedbecause theyareself-contained.
Professorsmaylimittheircoverageofchaptersinsomesectionswheretheybelieve thetextconceptsarecoveredbyothercoursesordonotneedadditionalattentionbeyondwhatisinthetext.Forexample,theymaygivelessattentiontothechaptersin Part2 (Chapters6through8)iftheirstudentstakeacourseininternationaleconomics. Ifprofessorsfocusonthemainprinciples,theymaylimittheircoverageofChapters5, 15,16,and18.Inaddition,theymaygivelessattentiontoChapters19through21if theybelievethatthetextdescriptiondoesnotrequireelaboration.
ApproachoftheText
InternationalFinancialManagement, 13thEdition,focusesonfinancialmanagementdecisionsthatmaximizethevalueofmultinationalcorporations.Thetextoffersavarietyof methodstoreinforcekeyconceptssothatinstructorscanselectthemethodsandfeatures thatbestfittheirteachingstyles.
■ Part-OpeningDiagram. Adiagramisprovidedatthebeginningofeachpartto illustratehowthekeyconceptscoveredinthatpartarerelated.
■ Objectives. Abulletedlistatthebeginningofeachchapteridentifiesthekeyconcepts inthatchapter.
■ Examples. Thekeyconceptsarethoroughlydescribedinthechapterandsupported byexamples.
■ WebLinks. Websitesthatofferusefulrelatedinformationregardingkeyconceptsare providedineachchapter.
■ Summary.Abulletedlistattheendofeachchaptersummarizesthekeyconcepts. Thislistcorrespondstothelistofobjectivesatthebeginningofthechapter.
■ Point/Counter-Point. Acontroversialissueisintroduced,alongwithopposing arguments,andstudentsareaskedtodeterminewhichargumentiscorrectandto explainwhy.
■ Self-TestQuestions. A “Self-Test” attheendofeachchapterchallengesstudentson thekeyconcepts.TheanswerstothesequestionsareprovidedinAppendixA.
■ QuestionsandApplications. Asubstantialsetofquestionsandotherapplicationsat theendofeachchaptertestthestudent’sknowledgeofthekeyconceptsinthe chapter.
■ CriticalThinkingQuestion. Attheendofeachchapter,acriticalthinkingquestion challengesthestudentstousetheirskillstowriteashortessayonaspecifictopic thatwasgivenattentioninthechapter.
■ ContinuingCase. Attheendofeachchapter,thecontinuingcaseallowsstudents tousethekeyconceptstosolveproblemsexperiencedbyafirmcalledBlades,Inc. (aproducerofrollerblades).ByworkingoncasesrelatedtothesameMNCovera schoolterm,studentsrecognizehowanMNC’sdecisionsareintegrated.
■ SmallBusinessDilemma. TheSmallBusinessDilemmaattheendofeachchapter placesstudentsinapositionwheretheymustuseconceptsintroducedinthe chaptertomakedecisionsaboutasmallMNCcalledSportsExportsCompany.
■ Internet/ExcelExercises. Attheendofeachchapterareexercisesthatexposethe studentstoapplicableinformationavailableatvariouswebsites,enabletheapplicationofExceltorelatedtopics,orprovideacombinationofthese. Integrative
Problem. Anintegrativeproblemattheendofeachpartintegratesthekeyconcepts ofchapterswithinthatpart.
■ MidtermandFinalExaminations. Amidtermself-examisprovidedattheendof Chapter8,whichfocusesoninternationalmacroandmarketconditions(Chapters1 through8).Afinalself-examisprovidedattheendofChapter21,whichfocuseson themanagerialchapters(Chapters9through21).Studentscancomparetheiranswerstothoseintheanswerkeyprovided.
■ SupplementalCases. Supplementalcasesallowstudentstoapplychapterconceptsto aspecificsituationofanMNC.AllsupplementalcasesarelocatedinAppendixB.
■ RunningYourOwnMNC. Thisprojectallowseachstudenttocreateasmallinternationalbusinessandapplykeyconceptsfromeachchaptertorunthebusiness throughouttheschoolterm.Theprojectisavailableinthetextbookcompanionsite (seethe “OnlineResources” section).
■ InternationalInvestingProject. Thisproject(locatedinAppendixD)allowsstudents tosimulateinvestinginstocksofMNCsandforeigncompaniesandrequiresthem toassesshowthevaluesofthesestockschangeduringtheschoolterminresponse tointernationaleconomicconditions.Theprojectisalsoavailableonthetextbook companionsite(seethe “OnlineResources” section).
■ DiscussionintheBoardroom. LocatedinAppendixE,thisprojectallowsstudentsto playtheroleofmanagersorboardmembersofasmallMNCthattheycreatedand tomakedecisionsaboutthatfirm.Thisprojectisalsoavailableonthetextbook companionsite(seethe “OnlineResources” section).
■ Thevarietyofend-of-chapterandend-of-partexercisesandcasesoffermany opportunitiesforstudentstoengageinteamwork,decisionmaking,and communication.
ChangestothisEdition
Allchaptersinthe13theditionhavebeenupdatedtoincluderecentdevelopmentsin internationalfinancialmarkets,andinthetoolsusedtomanageamultinationalcorporation.Inparticular,thefollowingchapterswererevisedsubstantially:
■ Chapter2 hasbeenrevisedtoreflectthebalance-of-paymentsformatthatisconsistentwiththerecentformatusedbytheU.S.governmentforreportingthespecific accounts.
■ Chapter3 hasbeenrevisedtoimproveflowbetweensections,andtoupdatethe manipulationofexchangeratesintheforeignexchangemarket.
■ Chapter6 nowincludesasectiononblackmarketsforcurrencies,andasectionon therecentchallengesoftheEuropeanCentralBank(ECB)tostabilizefinancial conditionsintheeurozone.
■ Chapter8 hasbeenrevisedsubstantiallytosynthesizetherelationshipsbetweenthe Fishereffect,purchasingpowerparity(PPP),andtheinternationalFishereffect(IFE).
■ Chapter9 hasbeenreorganizedtoimprovetheflow.
■ Chapter10 hasbeenrevisedtoimproveflowbetweensections,andtodirectattentiontothevalueatriskmethodforassessingexchangerateexposure.
■ Chapter13 nowincludesanewcasestudyexample.
■ Chapter14 nowincludesmoredetailedinformationabouthowmanagers(andstudents)canusespreadsheetstofacilitatetheinternationalcapitalbudgetingprocess andapplysensitivityanalysis.
■ Chapter18 hasbeenrevisedtoimprovetheflowbetweensections.
OnlineResources
Thetextbookcompanionsiteprovidesresourcesforbothstudentsandinstructors.
Students: Accessthefollowingresourcesbygoingto www.cengagebrain.com and searching ISBN9781337099738:RunningYourOwnMNC,InternationalInvesting Project,DiscussionintheBoardroom,KeyTermsFlashcards,andchapterWeblinks.
Instructors: Accesstextbookresourcesbygoingto www.cengage.com,logginginwith yourfacultyaccountusernameandpassword,andusing ISBN9781337099738 tosearch forinstructorresourcesortoaddinstructorresourcestoyouraccount.
InstructorSupplements
Thefollowingsupplementsareavailabletoinstructors.
■ Instructor’sManual. Revisedbytheauthor,theInstructor’sManualcontainsthe chaptertheme,topicstostimulateclassdiscussion,andanswerstoend-of-chapter Questions,CaseProblems,ContinuingCases(Blades,Inc.),SmallBusinessDilemmas,IntegrativeProblems,andSupplementalCases.
■ TestBank. Theexpandedtestbank,whichhasalsobeenrevisedbytheauthor, containsalargesetofquestionsinmultiplechoiceortrue/falseformat,including contentquestionsaswellasproblems.
■ Cognero™ TestBank. CengageLearningTestingPoweredbyCognero™ isaflexible onlinesystemthatallowsyouto:author,edit,andmanagetestbankcontentfrom multipleCengageLearningsolutions;createmultipletestversionsinaninstant;delivertestsfromyourLMS,yourclassroom,orwhereveryouwant.TheCognero™ TestBankcontainsthesamequestionsthatareintheMicrosoft® WordTestBank. AllquestioncontentisnowtaggedaccordingtoTierI(BusinessProgramInterdisciplinaryLearningOutcomes)andTierII(Finance-specific)standardstopic, Bloom’sTaxonomy,anddifficultylevel.
■ PowerPointSlides. ThePowerPointSlidesprovideasolidguidefororganizinglectures.In additiontotheregularnotesslides,aseparatesetofexhibit-onlyPPTsarealsoavailable.
AdditionalCourseTools
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Whetheryouneedprint,digital,orhybridcoursematerials,CengageLearningCustomSolutionscanhelpyoucreateyourperfectlearningsolution.DrawfromCengageLearning’sextensivelibraryoftextsandcollections,addyourownoriginalwork,and/orcreatecustomized mediaandtechnologytomatchyourlearningandcourseobjectives.Oureditorialteamwill workwithyouthrougheachstep,allowingyoutoconcentrateonthemostimportantthing yourstudents.Learnmoreaboutallourservicesat www.cengage.com/custom
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Acknowledgments
Severalprofessorsreviewedpreviousversionsofthistextandinfluenceditscontentand organization.Theyareacknowledgedbelowinalphabeticalorder.
TomAdamson,MidlandUniversity
RajAggarwal,UniversityofAkron
RichardAjayi,UniversityofCentral Florida
AlanAlford,NortheasternUniversity
YasserAlhenawi,UniversityofEvansville
H.DavidArnold,AuburnUniversity
RobertAubey,UniversityofWisconsin
BruceD.Bagamery,CentralWashington University
JamesC.Baker,KentStateUniversity
GuruduttBaliga,UniversityofDelaware
LaurenceJ.Belcher,StetsonUniversity
RichardBenedetto,MerrimackCollege
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LIST OF ILLUSTRATIONS
P S J H D H (From a photograph by Barraud.) Frontispiece
S H
R S S M
229
To face page 238
R 353
P S J H D H
To face page 368
NOTE
T system of orthography used in this book for native names and places is that adopted by the Council of the Royal Geographical Society, the true sounds of words as locally pronounced being taken as the basis of spelling, except in the case of old-recognised names such as Tangier (more properly Tanja). According to this system, vowels are pronounced as in Italian; consonants as in English; kh and gh as the Oriental gutturals.
Morocco, the name of the region of Western Mauritania of Roman geography, has undoubtedly been corrupted from the native name ‘Moghreb’ (setting sun). Maroc, Marocco, Marruecos, Marok, &c.,
written by different peoples of Europe, are curious corruptions, some even further off from Moghreb than the English corruption of the native name, and no nearer to the old classic corruption Mauritania than in beginning with Ma instead of Mo.
The name of the ancient city which we British call Marocco, or yet more absurdly Morocco, is in the mouth of the natives ‘Marákesh.’
SIR JOHN HAY DRUMMOND HAY
CHAPTER I.
BOYHOOD. 1816-1834.
I 1816, my father, at that time Major in the 73rd Regiment, was on the staff of Lord Lynedoch—then in command of the army of occupation—and held the post of ‘Majeur de Place’ at Valenciennes; where my mother, after the conclusion of peace, had joined him. Here I was born on the 1st of June of that year, and my name was inscribed as a French citizen at the Mayoralty.
After my father retired from the army, he was offered by his relative the Earl of Kinnoull, hereditary Lord-Lyon, the office at Edinburgh of Lord-Lyon Clerk. At Edinburgh we resided first in an old-fashioned house at Deanhaugh—the boards of the room where I slept were stained with the blood of a tenant who had committed suicide there—the garden adjoined that attached to the house where the painter Raeburn dwelt. Later, we moved into a house in Athol Crescent, one of the first of the new buildings in Edinburgh in those days; I have a little sketch, from a window at the back of the house, of the pretty country seen therefrom and which is now all built over.
With my elder brother, I was sent as day-boarder to the Academy. Early in the morning, after a breakfast of porridge, and having been given by my mother a penny to buy a ‘bap’ for my luncheon, I started off, with my satchel on my back, for school. Near Stockbridge I would meet ‘daft Jamie’—walking up and down in all weathers, bareheaded, with his hands behind his back—and often gave the
poor fellow half my bap: one day he had disappeared, and afterwards I learnt he had been one of the first victims of the murderers Burke and Hare, who sold bodies for dissection to the eminent surgeon, Knox.
Being an indolent boy, and having great difficulty in learning by heart any lesson, I was always at the bottom of the form, but, for my age and size, I was the best runner and player at football; at which game I broke my arm and was taken to the well-known surgeon, Symes, to have it set.
On going to school in the morning, I passed through Charlotte Square and there frequently met Lord Cockburn[1] taking an early walk, wearing Hessian boots, a large frill of shirt showing from his waistcoat and a long chain with seals dangling from the fob in the top of his trousers. He was a friend of my father’s, and on one occasion he stopped and asked me to state what place I held in the form.
Hanging my head with shame, I did not reply.
‘Come,’ he said, ‘I dare say you are dunce! Tell me.’ I replied that I was always at the bottom of the form. Upon which Lord Cockburn said, ‘That’s right, my dear boy; keep there and you are sure to get on in life and become an eminent man. Do you know who I am?’
‘Yes,’ I said, ‘you are a judge.’
‘Well,’ he resumed, ‘I was like you, always at the bottom of the form. Some day you may be a judge, or a greater man than I am.’
Shortly after this happened, having reported to my mother that I was dunce as usual, she remonstrated with me for being such an idle boy. Then I joyfully related Lord Cockburn’s language to me, adding, ‘Some day I shall be as great a man as he is.’ As may be
supposed, the judge was rebuked by my parents for encouraging me in idleness!
The future archbishop, Tait, was at the Edinburgh Academy at the same time as myself. Though an idle boy, I learnt more at that school than I did in the five years I spent at Charterhouse—whither I was transferred with my brother in 1827—and it was at the Academy that I won a prize of which I was very proud. It was not a reward for efficiency in study, but an annual prize given to the boy who was elected by a majority of votes as the favourite of the school.
In 1844, being on a visit to a friend in Edinburgh, I went to the Academy, and on inquiring of the porter at the entrance who were then the masters, I learnt that one of them was Ferguson, who had been master of my form, and that he was then at lunch in the lodge with the other masters. I entered, without my name being announced, and, recognising Ferguson, gravely said: ‘I beg to be let off to-day, Sir, for being late; I was prevented coming earlier.’
‘Hay junior,’ he replied at once, ‘you are forgiven.’ How he had been able to remember my face after a lapse of sixteen years, when he had known me only a smooth-faced boy, who now returned as a man with a moustache, was especially strange to me, who never can recollect any face—unless indeed it be that of a pretty woman!
Walter Scott was a great friend of my family and frequently came to Athol Crescent. I have often sat on his knee and had stories told me by him. I also accompanied my father to Abbotsford and spent some days there, and I remember that on our arrival Walter Scott, followed by his sleugh-hound ‘Maida,’ came out to welcome us, and, taking my father by the arm, he turned round to ‘Maida’ and said, ‘Do you take care of Johnny and let him have a ride on your back if he
likes.’ ‘Maida’ and I became great friends, and she allowed me to get on her back; for I was a very slight boy.
When in Edinburgh, Walter Scott for a time lived in Walker Street, leading out of Coates Crescent, opposite to our house. He called one day on my mother and said he was going away for a month and requested that he should be allowed to send, at night, his writingtable, desk, and chair to her house, as he said his housekeeper complained bitterly that she had no peace from the constant visits of travellers, asking permission to see the chair, &c., where he wrote his works. My mother consented, and Walter Scott then added: ‘I shall put a notice on the door of my house, “Walter Scott has left this house and his furniture has been removed.”’
A few days after the removal to Athol Crescent of the desk and other articles, there was an unceasing knocking and ringing of bells at our front door by travellers, begging to be admitted to see the desk. My mother had to have it removed, and a notice, similar to that suggested by Walter Scott, was placed on the door
Mention is here omitted of an incident well remembered by his children as related by Sir John’s mother, Mrs. Hay. Some visitors who gained admittance to her house removed surreptitiously her own worn quill pen from Walter Scott’s desk, under the impression that it had been used and left there by him!
Among the memoranda left by Sir John are notes to the effect that when he entered Charterhouse, Thackeray had either just left or was about to leave that school; but Havelock, Leech, and John Murray were his schoolfellows, as also a young Sheridan, who was remembered by him chiefly on account of the readiness with which he would improvise verses on any subject. This boy appears to have been of improvident habits, and was generally in a state of impecuniosity, which debarred him from buying the dainties in which
other boys indulged. His schoolfellows would offer to share their tarts, &c., with him if he would make verses in reference to them—to which he would instantly respond with apt rhymes.
During their early school life at Charterhouse the brothers spent their holidays with either of their two grandfathers, the one being the Rector of Hadleigh, Dean Drummond (youngest son of the Archbishop of York of that day, and brother of the ninth Earl of Kinnoull), through whom lay Sir John’s claim to French extraction, as the Dean’s wife was a daughter of the Prince de Vismes et de Ponthieu. Captain J. Thomson was their other and maternal grandfather. A very learned linguist, he had been private secretary to the Marquess of Hastings in India, spoke twenty-five languages, and was author of Etymons of the English Language, which work was completed after his death by his son-in-law, Mr. E. A. Drummond Hay, father of the subject of the present memoir.
At Christmas-time, however, the two boys returned to their parents in Edinburgh, a long, wearisome journey from London, travelling by coach through two days and nights in bitterly cold weather The return journey to school, in particular, seems to have left a desolate remembrance of arriving in London, cold and stiff after long confinement in the crowded coach, but also a pleasant recollection of the gruff kindness to the young travellers of the guards, who would often forego their customary tip when changing, rather than disturb from their sleep the schoolboys who were going from home.
After the death of Dean Drummond, and the appointment of their father to a foreign post in 1829, the brothers were wont to spend a portion of their holidays at Dupplin Castle with the Earl of Kinnoull, to whom they were then prospective heirs: the elder to the earldom, the younger to the property of Cromlix. In fact, Lord Kinnoull asked their father to allow him to have entire charge of the two boys and of their education, in view of their being his probable successors. But this offer was prudently declined, their father not wishing them—the sons of a poor man—to be brought up amidst surroundings unsuited to
adapt them for pushing their own way in life, and in the expectation of a prosperous future which, in their case, might fail to be realised. In this he judged wisely; as, while still in the prime of life, Lord Kinnoull married and had a large family.
The boys, however, continued to spend many happy holidays at Dupplin; posting from Edinburgh to Perth, a pleasanter mode of travelling than by coach.
Another recollection, in connection with their visits to Dupplin, was the ceremonious importance of their attendance at the parish church at Aberdalgie on Sundays. Though only a short distance intervened between this place and the Castle, the family coach, with four horses and postilions, was always prepared, and in this manner the two schoolboys proceeded alone to the church, to occupy on arrival the family ‘sitting,’ and listen, with what patience they might, to the long discourse of the minister.
In 1829 my father was appointed Political Agent and Consul General in Morocco. At that time I was at Charterhouse, and first received the tidings from another boy who had seen the notice in the Gazette. Geography was not taught at Charterhouse, and, as my informant professed ignorance regarding the whereabouts of Morocco, beyond that ‘it was a country in Africa inhabited by naked niggers,’ we got hold of a map and made therein a voyage of discovery until we found Morocco.
My family came up to London from Edinburgh and rented a house in Clarges Street for the season, and my father decided that my elder brother, the late Sir Edward Hay, and I should remain at Charterhouse two or three years longer; then rejoin our family at Tangier, and there be placed under a private tutor.
It was a curious coincidence that before my father was appointed to Morocco, or had indeed any expectation of obtaining any
employment in a foreign country, the boys at Charterhouse had nicknamed me ‘Othello,’ or ‘the Moor,’ not only because I was a passionate youngster who resented an injury, but also on account of my dark eyes and hair and olive complexion; typical of a thorough Hay, according to Sir Walter Scott in The Fair Maid of Perth, where he describes the clan as ‘a dark, short race.’
A frigate, H.M.S. Athol, in command of Captain Gordon, conveyed my father and family to Tangier.
Three years later [1832], when I was fifteen, my brother and I, to our great joy, were summoned to join them. Steam communication was very rare in those days, and we sailed from Plymouth in a merchant brig of about a hundred and fifty tons, with only a skipper and four seamen on board. She was a clipper and made the run in seven days.
It was a rough life on board the brig: hard sea-biscuit, salt pork, with now and then currant dumplings, was the fare.
Nothing particular occurred during the voyage, except that after rounding Cape St. Vincent, when off the Spanish coast, a large lateen craft—called a ‘mistico’—gave chase, making signals to the brig to heave to: but our skipper, who declared the ‘mistico’ to be a pirate, responded to the signals by hoisting every stitch of canvas— though a strong breeze was blowing—and we flew through the water, leaving the ‘mistico’ far behind, and she gave up the chase after firing shots which missed us. Probably she was a Spanish revenue vessel and her commander had mistaken us for a smuggler
There was a six-horned Barbary ram on board, which the skipper had not been allowed by the Customs’ officers to land in England, for fear, I suppose, of its contaminating the British breed of sheep. No provision of fodder had been made for the poor animal, but, as he
had become a great favourite with the sailors, he was not made mutton of, and lived on a pittance of hard biscuit, which the sailors gave him from their rations. The poor ram was so ravenous that I mischievously offered him one day a slice of cold mutton between two pieces of biscuit, and this he devoured with avidity!
On our arrival at Tangier, my brother and I were placed under the tuition of a Spanish gentleman, Don Gregorio de Borgas y Tarius, whose father had been Captain-General in Estramadura; but, during the reign of Ferdinand, having taken part in some ‘pronunciamiento’ against the despotic acts of that sovereign, he was compelled to fly from Spain. His property was confiscated, and he and his son gained their livelihood by giving lessons. Don Gregorio was a learned man —not only a classical scholar, but a good mathematician, and spoke French perfectly
During the five years I had spent at Charterhouse I had studied little or nothing except football, cricket, tennis, and other games; in these I took the lead of others of my age. What I knew of Latin or Greek had been acquired by me when a day-boarder at the Edinburgh Academy—a far superior school at that time to Charterhouse for education, as idle boys were there made to study: but even at the Academy, geography and modern history were not taught. I had learnt the history of the gods and goddesses, and knew much about the doings of Jupiter, Juno, Hercules, Venus, &c., but was left in total ignorance of English history, except what my mother taught me, while knowing little or nothing of the history of Europe, or even of the recent great war with Napoleon.
After we had spent two years in Tangier, my elder brother was appointed a clerk in the Colonial Office, through the influence of our relative, Mr. Robert Hay, then Under-Secretary for the Colonies; so I
was left alone under the tuition of Don Gregorio, but made little progress, except in the French and Spanish languages, which I acquired with as much ease as I had experienced difficulty in mastering the classics.
L M S S J ’ .
41 Stanhope Gardens, S.W., Jan. 31, 1895.
You have asked me, my dear friends, to tell you something of our recollections and impressions of your father’s early home; not that of his childhood, but of his early youth that in which his character was formed and the bent and purpose of his manhood received its definite direction. It is but little that I can tell; but as I am one of the few survivors of those who had the privilege of knowing that home in those early days I will do what I can.
It was my father’s appointment late in 1830 to the post of Captain of the Port at Gibraltar that first brought us into contact with the Hay family Not long after our arrival Mr Drummond Hay came over to see us and claim my mother as his cousin, though till then personally unknown; and his kindness and delightful conversation and old-world courtesy had made an easy conquest of us all. The invitation that followed for Minnie[2] and myself to pay a visit to Tangier was therefore at once accepted with great glee; though circumstances a deep family sorrow, illness, and my father’s absence in England delayed it till the spring of ’33. At last the moment came. My father took us over, and we were left among strangers who were to become the dearest friends of all our after lives
Mrs. Drummond Hay’s kind motherly greeting to her two young guests soon set us at ease. Mr. Hay delighted us again as at first, and we then were at leisure to make acquaintance with the younger members of the family; first Louisa[3] , the eldest daughter, a year older than myself; then your father, at that time a lad between sixteen and seventeen
Your father, who had but lately left Charterhouse and come to live at home, was at this time engaged with the study of Arabic, more rare then than now, and which was carried on more or less secretly owing to native jealousies. He was thus not only preparing for work, but was also laying in great measure the foundation of that immense influence and popularity among the Moorish population, for which he was so remarkable in after years.
When the busy mornings were over, riding and music were the two delights that drew the young party together. Under Mr. Hay’s guidance, and with the escort of a Moorish soldier, still at that time necessary for protection, many were the delightful
rides that we took beyond the precincts of the old town, along the shore, or through the half-wild country, so new in all its aspects to our eyes.
Then on our return, and often far into the evening hours, the long balcony, or gallery as it was called, outside the drawing-room windows was our favourite resort. Here we eat fruit, and talked over our ride, and here guitars were brought out, and song and merry talk went on.
The garden, full of flowers and lovely shrubs, lay below us; in the distance stretched the rugged coast of Spain; Gibraltar reared aloft its rocky summit, whence the flash of the evening gun might be seen; while the golden glory of the Western skies lighted up the narrow sea between, alive with fishing craft, or some stately vessel passing through the straits Truly it was a lovely view, and once enjoyed could never fade from one’s memory. That enjoyment was only changed for the pleasant circle at dinner, or in the drawing-room.
Perhaps it was the fact of our close intimacy with dear Mrs. Hay through the long years of her many changes and trials that makes the recollection of the first impressions of her less vivid; yet her gracious beauty, her gentle, pleasant ways in the midst of the cares of such a household, can never be forgotten But Mr Hay was himself emphatically the centre and ruler of the family life a stern ruler at times to his children, but they revered the will which they were bound to obey, and loved the father Louisa’s congenial spirit, her sympathy in his literary tastes, made her naturally his companion, young as she was, and as secretary—no such person was then officially recognised she was invaluable.
Such, then, as I have striven partly to describe it, was the home in which John Hay was gradually developing the qualities that were most remarkable in him through later years courage, resolution, sense of duty, power of work and willingness to work, warm and wide sympathies, overflowing fun, and readiness to give help, no matter in what direction: if the thing wanted were in his power to do it was done, from mastering an unruly horse to teaching algebra to a backward student
The outside surroundings of the home had also their influence. Society in Tangier was necessarily restricted, but within the small circle of different nationalities the social tone of various countries became familiar, and then the intercourse tended to dissipate national prejudices, and to lead the young to wider sympathies than generally prevail where all are more or less under the sway of the same habits and associations This was naturally favourable to one who was destined to the diplomatic service, as was also the necessary use of at least two foreign languages French for society, and Spanish, partly for the same, but also as the medium of common intercourse with all the non-Arabic surroundings
With reference to your dear father especially I may truly say that whenever we met him in after years we felt that we were meeting the same valued friend of our
youth, and again our thoughts turned to the dear old home where, under a noble father’s guidance, he was trained to all manly excellence, and where he had learned to form his ideal of womanhood under the influence of the loving, unselfish mother, and the sister whose bright intellect added force to the pure beauty of her character, and made her worthy to be his trusted friend and confidant to the last hours of her life
CHAPTER II.
WAITING FOR EMPLOYMENT JOSÉ MARIA. 1834.
I 1834, I travelled through Andalusia with my tutor, and visited, amongst other towns, Seville, where I had been requested by my father to rent a furnished house for three months, as he had obtained leave of absence and intended to spend it there with his family. Mr. Ford, the author of the Handbook on Spain, and father of Sir Francis Clare Ford, afterwards Ambassador at Madrid, then resided at Seville; and, as he was about to leave, I hired his house.
Ford had made the acquaintance of José Maria, the famous brigand—the ‘Little John’ of Spain—who had been pardoned by the Queen on condition of his acting as chief of a body of ‘guardia civil’ and devoting himself to suppressing brigandage. He asked me if I would like to see this notorious ex-robber and hear, from his own lips, anecdotes of his life as a brigand. I readily assented, so José Maria was invited to a luncheon at which I was present.
José Maria told us that all the robbers and thieves in the Southern provinces of Spain had been for some years under his control—he could collect when required a body of about forty well-mounted and armed men—and related how his pardon and present appointment had been obtained.
Hearing that Queen Christina, attended by an escort of cavalry, was about to pass, on her return to Madrid from a visit to Granada, through a wooded country known to be infested by banditti, José
Maria collected his well-mounted brigands, armed and dressed in handsome ‘majo’ costume, and placed them at the entrance of the forest through which Her Majesty would pass.
On the approach of the royal cortège, José Maria, observing a trooper posted as vedette in advance of Her Majesty’s escort, accosted the man and informed him that, as a loyal subject of the Queen, he had brought a body of well-armed and mounted inhabitants of the neighbourhood to escort Her Majesty through the woods in safety.
The trooper rode back and reported this language to the officer in command of the escort, adding that he suspected from the appearance of their chief that the men were banditti.
This was repeated to the Queen by the officer, who also informed Her Majesty that he was prepared to attack the supposed banditti.
Queen Christina, however, ordered him not to attack, but, after taking the necessary precautions against treachery, to bring the chief of the band to her carriage.
José Maria, at the request of the officer, then came forward. The Queen thanked him for his loyalty in having assembled a body of mounted men to ensure her safety in a district said to be infested by brigands. ‘Place your men,’ said Her Majesty, ‘in front of the escort, and then come yourself to the one side of my carriage, whilst the officer in command of the cavalry rides on the other.’
After traversing the forest, José Maria asked permission to retire with his mounted followers, and at the same time announced that he had a boon to beg.
‘What is it?’ said Her Majesty. ‘I shall be glad to make my acknowledgement of the service you have rendered.’
Bowing low, he answered, ‘I am José Maria, the chief of the banditti who infest your realms. I ask for pardon for myself and for those of my followers who may be ready to accept it: for those who do not accept, as they have accompanied me on the present occasion without knowledge of my intended petition, I beg that they be allowed to depart without hindrance.’
The Queen, after conferring with the officer in command, granted José Maria’s prayer, on condition, however, that he should become a chief of the ‘guardia civil’ and assist in putting down brigandage.
All the brigands accepted Her Majesty’s pardon, with the exception of a man nicknamed ‘Veneno’ (poison), who had been José Maria’s lieutenant.
José Maria related to us stories of the most daring robberies he had committed, in various parts of Spain, on passengers by diligence and other travellers. He declared that his band had never robbed or molested the farmers or peasantry; but, on the contrary, when they heard that a wedding or other feast was taking place, he would appear with some of his men in smart ‘majo’ costume and bring presents for the bridegroom and bride. Also that the Alcaldes, or petty magistrates of the villages, were all bribed by him when a robbery was committed in other districts than their own; and when cavalry were sent in pursuit of the banditti, the country people never betrayed them, but kept José Maria informed of their movements whilst they misled his pursuers.
The brigand told us that on one occasion he had robbed an English gentleman travelling in Andalusia on horseback, with a Spanish guide, of their horses and everything they possessed except the clothes they wore. ‘The Englishman,’ he added, ‘was a bright, pleasant youth, and submitted with good humour to the robbery; so I
felt sorry, as he was forty miles from Seville, whither he was going, that he should have to walk that distance, and I gave him back his servant’s horse and a doubloon (sixteen dollars) out of the two hundred dollars I had taken from him, mentioning that he might require that money for lodging and food on the road before he had reached his destination.’
‘My young friend,’ José continued, ‘thanked me warmly, adding that since I had been so kind he had a great favour to ask, which was that I should return him his gold watch as it had been the parting gift of his dear father.’
‘Is your father alive, and does he love you very much?’
‘Oh, yes,’ replied the youth, ‘he lives and loves me.’
‘Then,’ said José Maria, ‘I shall keep this watch, and as your father loves you so dearly he is sure to give you another!’
José then gave the young Englishman a signed pass, requiring that all brigands or thieves in Andalusia or Estramadura should refrain from robbing or molesting the bearer. He also told him, if robbed at any time, where to send a note which would be sure to find him.
The Englishman spent some weeks at Seville, and, returning one evening from Alcalá, was attacked and robbed by a man armed with a gun. He showed the pass to the footpad, who only remarked that he was not going to have the bread taken out of his mouth by the brigand José Maria or any other man.
The Englishman then had a note written in Spanish and sent to the care of the head man of a village mentioned by José Maria, to be forwarded to the great brigand, stating the sum of money that had been stolen from him. Within a week a Spaniard called at the hotel
where the traveller lodged and returned the money, adding, ‘The “ratero” (thief) has been stabbed for paying no attention to José Maria’s pass.’
After luncheon, José Maria had his horse brought for us to see. It was a well-made Spanish ‘jinete,’ standing about 15.1, and had the appearance of being fast. He mounted the nag and rode rapidly up a street, presently returned at a gallop, jumped off, and, removing the bridle, gave the animal a slap and then ran into the house. The horse went off at full gallop and disappeared up one of the streets.
‘Now,’ said José Maria, ‘I am supposed to have committed a robbery and to have been pursued by cavalry in a wood. I have taken off the bridle, and my horse, if chased, will be sure from his swiftness and being riderless, to escape. Suppose me to have climbed a tree or hidden amongst bushes or rocks and thus eluded my enemies.’
After a short interval he continued, ‘I must now recall the horse, who, not being pursued, will not have gone far and is listening for my summons.’ So, taking a large whistle from his pocket, he walked up the street and commenced whistling. In a few minutes the horse galloped up, neighing as he recognised his master, who put on the bridle and caressed the intelligent beast.
‘For two years I have been employed,’ said José Maria, ‘in putting down brigandage, and have succeeded in arresting many robbers and “rateros,” but my late lieutenant “Veneno” has hitherto escaped us, and some day he will kill me!’
A year after my meeting with José Maria, I saw in the newspapers that ‘Veneno’ had been tracked by him to a cave in the mountains, frequented by this robber and his band. The ex-brigand entered the cave one night at the head of a body of ‘guardia civil’ and was killed
by ‘Veneno’ while in the act of arresting him. ‘Veneno’ and his companions were then shot by José Maria’s men.
Whilst residing with my father and family in the house he had rented in Seville, it happened on one occasion that I had dined and spent the evening with my friend Don ———, and did not leave his house until nearly eleven o’clock. It was fortunately bright moonlight, for Seville was then but dimly lighted. On saying good-night, my host accompanied me to his door and warned me to keep well in the centre of the streets, as at that late hour wayfarers were often attacked and robbed.
I had no weapon—not even a stick—with me. The evening was fresh, so I threw my Spanish ‘capa’ round me and walked briskly down the centre of the narrow streets which led to the great Plaza, about a mile distant, near which our house was situated. Presently I heard footsteps and, looking back, saw a figure following me, but keeping in the shadow.
I knew I was fleet of foot, so set off running at a good pace, feeling sure that if the fellow were dodging me he would follow. As soon as I quickened my speed the man sprang into the light and came after me, and I dashed on with him in pursuit. As I turned a corner I caught sight of his long ‘navaja’ gleaming in the moonlight. Finding my cloak heavy, I unfastened it and let it trail behind, determined to hold on to my new capa as long as I could. However, I soon outstripped my pursuer, and on reaching the Plaza paused to again wrap my capa about me and to reconnoitre well before venturing into the street where our house stood. The footpad had vanished on seeing me reach the lit and frequented Plaza.
After this I never ventured out at night without a pistol.
