Writing the third edition of this book in the midst of the global financial crisis is a rather challeng­ing task. Before the advent of the crisis, Alan Greenspan (the former chairman of the Federal Reserve Board) was a good guy who kept the US economy afloat, securitisa­tion was a great invention, financial engineering was a highly innovative exercise, globalisation was the way to go, financial regulation was bad, the name of the game was laissez faire finance, and untamed capitalism was the prevailing ideology. Things have changed, however. Alan Greenspan is accused of starting the crisis by pur­suing easy monetary policy (hence low interest rates) for a long time. Securitisation is seen as another reason for the advent of the crisis as it enabled bankers to take excessive risk. Financial engineering has become the means of creating risk rather than providing the tools to manage risk. Globalisation is seen as the reason for the spread of the crisis from the United States to the rest of the world and doing so extremely rapidly. And rather than advocating deregulation, the new consensus view is to put in place stringent regulation while replacing untamed capitalism with tamed capitalism.

In writing the third edition I had to have all of these points in mind, while at the same time responding adequately to the comments received from actual and potential users of the book. Most of the reviewers con­tacted by the publisher suggested that there was a need for information about the global financial crisis. This suggestion has been taken on board comprehensively. The crisis is mentioned whenever the issue under con­sideration has relevance to the crisis. Then a full and extended section on the crisis has been inserted at the end of Chapter 1. Moreover, a new chapter has been added on international banking regulation, particularly the Basel Accords, in which the discussion is conducted within the context of the global financial crisis.

I have also introduced more consolidation in the book and cut down on issues that may be taken by some users or potential users as being ‘too much economics’. For example, the chapters on PPP, CIP and UIP have been merged into one chapter entitled ‘international arbitrage’, as the third edition is written in such a way as to deal with international finance from the perspective of operations: arbitrage, hedging, speculation, financ­ing and investment. As a result of consolidation and re-organisation, the third edition has been reduced to 16 chapters (compared with 18 chapters in the second edition).

I could not handle some comments from the reviewers because they are contradictory. While some review­ers believe that the book is too formal and rigorous, others believe that it needs more rigour. As far as I am concerned, what is needed is to strike the right balance between rigour and accessibility, which I think is a fea­ture of this book.
I am grateful to the reviewers and to friends and col­leagues who have provided some input that guided me through the process of writing the third edition. I must say, however, that I am the only person responsible for any remaining errors and omissions in this book.

Imad Moosa
April 2009