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Multinational Business Finance
FIFTEENTH EDITION

David K. EITEMAN

University of California, Los Angeles

Arthur I. STONEHILL

Oregon State University and University of Hawaii at Manoa

Michael H. MOFFETT

Thunderbird School of Global Management at Arizona State University

New York, NY
Vice President, Business, Economics, and UK Courseware: Donna Battista

Director of Portfolio Management: Adrienne D’Ambrosio

Director, Courseware Portfolio Management: Ashley Dodge

Senior Sponsoring Editor: Neeraj Bhalla

Editorial Assistant: Catherine Cinque

Vice President, Product Marketing: Roxanne McCarley

Product Marketer: Kaylee Carlson

Product Marketing Assistant: Marianela Silvestri

Manager of Field Marketing, Business Publishing: Adam Goldstein

Executive Field Marketing Manager: Thomas Hayward

Vice President, Production and Digital Studio, Arts and Business: Etain
O’Dea

Director, Production and Digital Studio, Business and Economics: Ashley

Santora

Managing Producer, Business: Alison Kalil

Content Producer: Sugandh Juneja

Operations Specialist: Carol Melville

Design Lead: Kathryn Foot

Manager, Learning Tools: Brian Surette

Senior Learning Tools Strategist: Emily Biberger

Managing Producer, Digital Studio and GLP: James Bateman

Managing Producer, Digital Studio: Diane Lombardo

Digital Studio Producer: Melissa Honig

Digital Studio Producer: Alana Coles

Digital Content Team Lead: Noel Lotz

Digital Content Project Lead: Miguel Leonarte

Project Managers: Roberta Sherman, SPi Global/Andrea Archer and Angela

Urquhart, Thistle Hill Publishing Services, LLC

Interior Design: Laurie Entringer

Cover Design: Laurie Entringer

Cover Art: Didier Marti/Getty Images

Printer/Binder: LSC Communications, Inc.

Cover Printer: Phoenix Color/Hagerstown

Copyright © 2019, 2016, 2013 by Pearson Education, Inc. or its affiliates. All
Rights Reserved. Manufactured in the United States of America. This
publication is protected by copyright, and permission should be obtained
from the publisher prior to any prohibited reproduction, storage in a retrieval
system, or transmission in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise. For information regarding
permissions, request forms, and the appropriate contacts within the Pearson
Education Global Rights and Permissions department, please visit
www.pearsoned.com/permissions/.

Acknowledgments of third-party content appear on the appropriate page

within the text, which constitutes an extension of this copyright page.

PEARSON, ALWAYS LEARNING, and MYLAB are exclusive trademarks

owned by Pearson Education, Inc. or its affiliates in the U.S. and/or other
countries.
Unless otherwise indicated herein, any third-party trademarks, logos, or icons
that may appear in this work are the property of their respective owners, and
any references to third-party trademarks, logos, icons, or other trade dress are
for demonstrative or descriptive purposes only. Such references are not
intended to imply any sponsorship, endorsement, authorization, or promotion
of Pearson’s products by the owners of such marks, or any relationship
between the owner and Pearson Education, Inc., or its affiliates, authors,
licensees, or distributors.

Cataloging-in-Publication Data is available on file at the Library of

Congress.

1 18

ISBN 13: 978-0-13-479655-0

ISBN 10: 0-13-479655-1

Preface
New to This Edition
Our continuing challenge is to strike a balance between being one of the very
first textbooks in this field (and therefore in many ways defining the field)
and introducing the many new concepts and components in global business
today, from crowdfunding to blockchain. We therefore have hopefully found
some balance between what is valued by continuing adopters and the valued
insights of selected reviewers—the innovator’s dilemma. Surveys of adopters
were extremely useful in this revision, and a number of specific
developments were included.

The Impossible Trinity. A core international financial principle, the

Impossible Trinity’s use as a unifying theoretical link across multiple
subjects and chapters has been expanded.

The Foreign Exchange Market and Digital Trade. New material in this
edition explores in depth how the changing structure of the global
foreign exchange market—trading, communication, and settlement—is
posing challenges for private players and public regulators and
overseers.

Translation Exposure Expansion. Translation exposure, a cross-section

of international finance, economics, and accounting, has been renewed
and expanded to more effectively cover its wider theoretical and
practical applications in industry.

Financing of Foreign Subsidiaries. Always a topic unique to the field of

multinational finance, our discussion of subsidiary funding sources and
practices has been expanded to include recent developments and
changing access to capital.

International Taxation. The seismic changes introduced by the United

 States effective on January 1, 2018, have been highlighted in exploration
of how taxation alters the fundamental financial management activities
of global companies from Apple to Caterpillar.

Political Risk and Financial Losses. The chapter on foreign direct

investment and political risk has been revised to reflect the growing use
of restrictions on convertibility, transferability, and the possibility of
repudiation or expropriation.

New and Edgier Mini-Cases. Eight of the 18 mini-cases are completely

new to the fifteenth edition, and explore many of the edgier debates
rising between global business, social policy, and corporate social
responsibility. Topics include Argentine debt and vulture investors,
Apple’s global tax structure, Brexit and its potential impact on Rolls-
Royce, Volkswagen’s governance structure and its defeat device
strategy, and political risk in Kazakhstan’s oil and gas industry, to name
a few.

Expanded Quantitative Applications. We have worked diligently to

increase the quantitative elements across subjects and chapters to push
students to explore the depth of analysis and comprehension.
Multinational Business Finance, Fifteenth Edition includes more than
250 end-of-chapter problems, all solved within Excel. We have also
continued to present problems that are based on real-world applications
and challenges, something we believe in very strongly.

Solving Teaching and Learning

Challenges
Multinational Business Finance is the financial management of
multinational enterprises (MNEs)—multinational financial management.
MNEs are firms and organizations of all kinds and sizes—for-profit
companies, family-owned businesses, sovereign states, and NGOs, among
others—that have operations in more than one country and conduct their
activities through a multitude of structures and contracts from wholly owned
foreign subsidiaries to joint ventures with local or global partners to host
governments.

Moreover, global business and finance, all the way down to the trading of
currencies, has been revolutionized by digital platforms from electronic
trading to blockchain contracts in complex international trade transactions.

Multinational Business Finance, Fifteenth Edition, is aimed at university

level courses in international financial mangement, international business
finance, international finance, and similar titles. It can be used at either the
graduate level or in executive education and corporate learning courses.

A prerequisite course or experience in corporate finance or financial

management would be ideal. However, we review the basic finance concepts
before we extend them to the multinational case. We also review the basic
concepts of international economics and international business.

Over many years and many editions, as we ourselves have used the book in
courses from Hyderabad to Helsinki to Honolulu, we have observed an ever-
widening audience for this book.

Global Financial Marketplace

Visit https://testbankfan.com
now to explore a rich
collection of testbank or
solution manual and enjoy
exciting offers!
 Exhibit 5.4 The Foreign
Exchange Market Today
Figure 5.4 Full Alternative Text

We continue to try and service this greater global audience with multi-
country companies, markets, and challenges, whether in theoretical
applications, practice boxes, mini-cases, or end-of-chapter problems.

Organization
Multinational Business Finance has been redesigned and restructured for
tightness—critical elements of the field but in a much shorter delivery
framework. This has been accomplished by integrating a number of previous
topics along financial management threads. The book is in five parts, the
parts unified by the common thread of the globalization process by which a
firm moves from a domestic to a multinational business orientation.

Part 1 introduces the global financial environment

Part 2 explains foreign exchange theory and markets

Part 3 explores foreign exchange rate exposure

Part 4 details the financing of the global firm

Part 5 analyzes international investment decisions

Pedagogical Tools
To make the book as comprehensible as possible, we use a large number of
proven pedagogical tools. Again, our efforts have been informed by the
detailed reviews and suggestions of a panel of professors who are recognized
individually for excellence in the field of international finance, particularly at
the undergraduate level. Among these pedagogical tools are the following:

A student-friendly writing style combined with a structured presentation

of material, beginning with learning objectives for each chapter, and
ending with a summarization of how those learning objectives were
realized.

A wealth of illustrations and exhibits to provide a visual parallel to the

concepts and content presented.

A running case on a hypothetical U.S.-based firm, Ganado Corporation,

provides a cohesive framework for the multifaceted globalization
process, and is reinforced in several end-of-chapter problems.

A mini-case at the end of each chapter illustrates the chapter content and
extends it to the multinational financial business environment.
 Exhibit A Argentine
Sovereign Bond Price and
Default (Due Nov.
2002/Defaulted)

Figure A Full Alternative Text

New mini-cases in this edition include, among others, the following:

Globalization—or not—of the Chinese renminbi

 Volkswagen’s corporate governance and its diesel defeat device

Rolls-Royce’s currency challenges with Brexit

Electrolux of Sweden’s newly restructured global currency

management program

Ferrari’s IPO and acceptance of slow revenue and cash flow growth

Tengiz—understanding political risk in one of the largest oil and

gas investments in the world

Global Finance in Practice boxes in every chapter highlight how real

firms and real managers deal with the never-ending complexity of
executing global business deals in a changing marketplace, from the
mundane accounts payable to the exceptional expropriation. These
applications extend the concepts without adding to the length of the text
itself.
Every chapter has a number of end-of-chapter exercises requiring the
use of the Internet, while a variety of Internet references are dispersed
throughout the chapters in text and exhibits.

A multitude of end-of-chapter questions and problems, which assess the

students’ understanding of the course material. All end-of-chapter
problems are solved using spreadsheet solutions. Selected end-of-
chapter problem answers are included at the back of this book.

Numerous mathematical derivations, such as parity conditions, foreign

currency option pricing, and complex option products, are placed in
appendices. This allows selective use as the student or faculty member
Exploring the Variety of Random
Documents with Different Content
 THE PLOT.

The Squire laughed, and rode off, all unconscious of the

little plot that had just been working round him.
 Between the Park and the open country flowed the river,
which was supposed either to have supplied, or formed, the
moat of the old castle, and which was crossed by means of
a small boat attached by a chain to both banks in the Park,
and by a stone bridge near the village. It was not very wide,
but at the part where it wound through the Falcon Range
grounds, it was deep, with steep banks, and not by any
means a tempting spot for a bath.

The time was about two hours after noon, and Guy
Falconer was on the Park side of the river busy at his work;
while Maude held an umbrella so as to screen it from the
light breeze which sent the stray leaves of autumn flying
about; and Evelyn, with a little basket of fruit in her hand,
had sat down at their feet to rest.

Suddenly they heard in the distance the shout of

huntsmen and of the cry of dogs, while from under a hedge
on a gentle eminence of the opposite meadow, sprang forth
the fox, which rushed into the river at a plunge, landed not
far from the three astonished friends, and disappeared. On
came horses and dogs, over hedge and ditch, in wild
excitement, as the coveted "brush" escaped up the river's
bank; down plunged the dogs, in furious disappointment,
amidst calls and shouts; in went huntsmen helter-skelter,
regardless of the bugle call to a better and safer ford;—all
was excitement and confusion—dogs barking, horses
plunging, riders shouting, and everyone too intent upon his
own safety and exploits to notice his companions.

Among the foremost came Squire Hazelwood, whose

horse never acknowledged impediment of any kind in a
hearty chase; but either the depth of the leap, or the water,
was too sudden, and took him unawares this time, for he
rolled over and over, dragging his rider head downwards,
unable to extricate his feet from the stirrups. The creature
struggled to the bank, but rolled back again, and the critical
condition of the Squire at once caught the attention of his
terrified child; he had fallen back also, and seemed
incapable of further effort.

Guy dropped his pencil and palette, and rushed to the

river's brink. He saw Mr. Hazelwood's partially released form
sinking deeper below the water and that not a moment
must be lost.

"Fly to the village, girls," he cried; "send men to meet

us lest I cannot manage it; then home both of you to Mrs.
Hazelwood, that she may not be frightened."

As he spoke, he threw off his light coat and jumped into

the water. It was not far to reach the spot where the horse
was swimming with the current, but it was needful to
approach cautiously, lest he should be disabled by a kick, as
he feared the Squire had been. To release the entangled
foot and hold up such a weight for any length of time was
no easy task; but Guy knew every turn of the river well,
and if he could but reach a shallower bend near the bridge,
and where also the landing was easier, he trusted that all
would yet end safely. He heard the shrieks of Evelyn
receding in the distance, and knew that his calmer sister
would render more effectual service in describing the
needed help.

It was a remarkable coincidence that whenever the

handmaiden Jane had an errand to the village, the old sign
at the "Falconer's Arms" seemed to creak in its swing, as if
there were something in the wind that concerned somebody
on the premises; and the ostler Joe, true knight that he
was, always felt bound to inquire into the matter. In
consequence of which, it happened that he and Jane were
walking leisurely along a quiet path between the village and
the Moat, when they were startled by the cries of Evelyn,
followed by the appearance of Maude, white and breathless,
and pointing to the river behind them.

Joe at once caught her attempted explanation, bade

Jane run back to the village to bid any men she might see
to hasten to his help, begged the young ladies to go home
and hope for the best, and dashed away to the river, and
the spot described by Maude. And only just in time. The
horse was nowhere to be seen, but Guy, still holding his
unconscious burden, had reached the shallower bank, and
felt that his failing strength would do no more, when loud
and cheerful rang out the encouraging voice of Joe.

"That's right, Master Guy, I've got hold; another push—

there now, he's safe. Don't you drift out again, sir; hold on
by that twig, and you'll be up in a minute."

To catch the twig and then the kind hand outstretched

to save him, to scramble on to the grass, and lay his head
in his sister's lap, was all that the exhausted boy could do,
and then he lost all consciousness of what had passed, or
was passing round him.

In the meantime the whole village was in consternation.

Several well-ducked gentlemen had taken refuge at the
"Falconer's Arms" and other houses readily opened to them,
and the news of real danger of the Squire sent a crowd of
ready helpers in quick response to Joe's message and
Jane's appeal.

Tenderly borne in their strong arms, he was carried to

the house, where Evelyn had already been preceded by the
horse, whose melancholy aspect as he pattered into the
stable yard had alarmed the servants, and brought them
about their mistress in excitement and sympathy.
 "Maude, Maude! Guy! Oh, mother! They are not come,"
cried Evelyn, as she missed them from the approaching
group, and stood with renewed terror by her mother's side.

"Hush, my child; we shall hear. Mrs. Falconer is asking."

"All right, Miss; all right, ma'am," said Joe, soothingly.

"The young lady is with her brother till we go back. You see,
he saved the Squire, and then were a bit knocked up like;
but he'll soon come round, never fear. And please you, my
lady, I've took the liberty to send off for the doctor, and lose
no time. The master breathes hard, and I reckon he's
wholly stunned for a bit; but he were not half drowned,
because of Master Guy, and he'll do by-and-by, my lady, so
don't take on about him."

All this while they laid their portly burden on the couch,
and respectfully retired, feeling more than thanked by the
grateful look of the lady, though then she could say nothing.

"Now, mates, we'll fetch Master Guy," said Joe; "and

please God, they'll both come round soon."

By that time Guy had recovered consciousness, and

knew the loving face that bent over him in such heart-sick
fear; and leaning on Joe's arm, insisted on walking home,
making anxious inquiries about the condition of the Squire.

"I think the horse must have hurt him, and so

prevented him from getting out of the water," said he.

"There be a wound on his head, sir," said Joe, "and that

stunned him; but he be a fine strong man, and it'll take
more nor this to knock the life out of him."

"And you will have been the means of saving him, our
kind, good Mr. Hazelwood," said Maude. "I shall so love to
think of it, Guy."

Guy smiled, and was soon in his mother's arms, cared

for, and happy; his wet garments changed, his heart uniting
with hers in deep and warm thanksgiving for the help and
safety vouchsafed.

"Well, mother, is he better? Does the doctor give hope?"

he anxiously asked, as she came for the last time, before
leaving him to sleep, with the report from Mr. Hazelwood's
room.

Another gentle step accompanied hers this time, and

Mrs. Hazelwood, pale and worn, indeed, but her fair face
expressive of tenderest interest, bent down and pressed a
fond motherly kiss upon his brow.

"He is conscious, dear Guy. The doctor says that with

care and quiet, he will recover; he has asked for you. To-
morrow, please God, he will see you."

"Oh, tell him I'm all right," cried Guy, the colour rushing
to his cheeks, "and I hope he will soon be the same."

The mothers smiled through their tears and left him.

Evelyn had sat in an agony of grief until she knew that

her father was restored to consciousness and had spoken
collectedly. Then she went to seek Maude, and hear of Guy.

"I don't think my father will ever call him 'poor lad'
again," she thought within herself, with a sensation of
considerable triumph.

And under the shadow of this strange interruption to the

even tenor of their lives, the inhabitants of the Moat and the
village went to rest at the end of that eventful day.
 It was some time ere the Squire was permitted to leave
his room, and in the matter of personal restraint, such a
patient manifested something of the temper of a rebellious
baby. He would have held perpetual levée, received
everybody, and talked about everything, but for the
watchful care of his body-guard, and the unanswerable
arguments of his chamberlain. But at last, his term of
imprisonment ceased, and he was again to assume his
wonted place and duties.

"Dorothy, my dear," said he, smelling about as he

descended the staircase, "I don't smell paint; has Master
Guy's promised work been delayed for my convenience?
Has he not begun to paint the house yet?"

"Come and see," said Mistress Hazelwood, smiling; and

taking his arm, she led him across the hall.

There, in the most conspicuous position favourable for

the light, was a large handsome picture of the old Moat
House; the time, morning; the scene, that in which the
Squire, mounted on his favourite hunter, and equipped for
the chase, was chatting with Mistress Hazelwood as she
stood under the porch leaning over the balustrade while
Evelyn was presenting the riding whip to her father. The
whole was so well delineated, the animation of the figures
so gracefully described, the group and colouring so skilfully
arranged, that instantly recognising the moment, and
comprehending now the reasons of playful detention that
morning, the Squire uttered a loud exclamation of delight,
which brought all the interested actors in the plot quickly
around him.
 "I must have the pleasure of buying your first picture,
my young friend," said he, seating himself opposite to it
with infinite gratification, "and at once commission you to
paint a fellow to it. The subject shall be the same steed,
only crest-fallen, the same rider, only well-nigh at the end
of life's chapter, and a hero to the rescue with the spirit of
the brave old barons of Falcon Range."

"Dear sir," said Guy, modestly, "that scene is too

painfully painted on all our minds to need any such
commemoration. Something that would express our
thankfulness to God for your recovery would please us all
much better."

"I knew he wouldn't paint that," cried Evelyn, the tears

springing to her eyes as she wound herself within her
father's arm, and stood gazing with him at the picture; "it is
not fair to ask him, is it, mother?"

"No, Evelyn; nor could Guy, even after long years of

study, ever imagine anything that would faithfully express
our gratitude to God, and to him, God's instrument, for the
mercy and lovingkindness bestowed upon us that day."

"May the life so saved be turned to better account in the

future, than it has been in the past," said Mr. Hazelwood,
humbly. "Then it seems I must find another subject to make
the pair; and in the meantime, Guy having performed his
part of Mistress Hazelwood's agreement, it remains for me
to fulfil mine. But, Guy," he suddenly exclaimed, merrily,
"am I not something of a lunatic? If I help you to become a
great painter, is it not like pulling down my house over my
head, seeing that, as a little bird whispered to me, all your
money is to go to the repurchase of the old Moat?"
 Guy blushed painfully. Somebody had betrayed him to
the Squire, and the idea now seemed to his own mind so
absurd and preposterous, that he would gladly have
concealed it for ever.

"Sir, I am ashamed that I had such a thought," he

stammered; "I never dreamed that anyone would tell you of
it."

"It was I who told," said Evelyn, penitently, "but not

because I was angry with you, Guy."

"No, Guy, but because she was angry with me, I do

believe," said the Squire, mischievously. "I said something
disparaging about somebody, and she revenged herself by
announcing my doom to lose the Moat. Was it not so,
Evelyn?"

Miss Evelyn could not wholly deny it, and feeling unable
to explain, rejoiced to be spared a reply, for the Squire
rose, and putting his hand on Guy's shoulder, said,—

"Tell me, my boy, whose thought was it to identify the

present owner with the house, by painting them together in
that pleasant scene?"

"My mother's, sir," said Guy, promptly.

"Guy, that is only part of the truth; tell the whole," said
the gentle voice of Mrs. Falconer.

"It was somehow this way, I believe," said Guy,

reluctantly. "I was to paint the house by Mrs. Hazelwood's
desire, and as I thought and thought over many things, I
began to feel ashamed of coveting the old place after God
has so decidedly given it to you, and I said to my mother
that I should like to prove whether I could really and truly
give up the foolish fancy of ever having it back again, and
be entirely willing to see you its owner and master."

"Well, my boy."

"Then my mother said I might perhaps paint out my sin

and folly, in the pleasant effort to present Mrs. Hazelwood
with a likeness of the master of the Moat at a happy
moment before his own door. And I do assure you, sir, that
in doing it, I have lost every trace of a wish to be in that
place myself. Your accident helped me more than I can tell
you."

"How so, Guy?"

"Why, it was when you were in the river, and I was

trying to free you from the horse, and when I was in terror
lest help should not come soon enough,—then the horrible
wickedness of coveting your property nearly distracted me,
and I prayed God to help me and to accept my resolve that
if He would spare your life, I would give up the thought for
ever, and desire for myself no inheritance but that which He
will give me. And He did spare you, and in solemn truth I
can say that I hope you and your people may keep the old
Moat as long as the world lasts. As for me, a great load is
gone off my mind—a nasty ugly sort of feeling of struggling
after something I could not get; and if I can only work for
my mother and Maude, I shall be the happiest fellow alive."

"I charge myself with that happiness my boy, if it be

within human means to attain it. Then, for the rest, have
we to thank your excellent mother for this victory over self
and natural feeling?"

Mrs. Falconer raised her eyes to the flushed face of her

son. It was a testing question; how easy to say Yes, and
seem to render the expected tribute to a mother's careful
teaching.

But Guy no longer dared to doubt the source of real,

practical self-conquest, and though shrinking from any hand
that would probe into inner experiences, he felt constrained
to honour God by an avowal of the grace that made him
"more than conqueror through Him that loved him."

"My dear mother has taught the possibility by precept

and example, sir; but not even she could have overcome
such wrong feelings as I have had on this point. I believe it
is only by God's Holy Spirit giving such faith in the Lord
Jesus Christ as can raise one out of old thoughts and
desires, into such new ones as He felt and taught Himself,
and become those who take Him for Saviour, and Captain,
and King."

"'If any man be in Christ he is a new creature; old

things have passed away; behold, all things are become
new,'" softly repeated Mrs. Falconer.

The Squire bowed his head, wrung Guy's hand as he

had never done before, and walked away with Mrs.
Hazelwood into the lady's sheltered garden.

On the following Sunday, he appeared once more with

his family in the old parish church, and united with them in
"public thanks to Almighty God for His late mercies
vouchsafed in preservation from sudden death, and
restoration to health of mind and body."

* * * * * *

"Dorothy, my dear," said the Squire, soon afterwards,

"we must do something more than speak. We must try to
prove in deed what we have said in word. Have you any
thought on this matter? You mentioned something about a
thank-offering, I think."

"We have reaped a rich reward for bearing in mind the

fatherless and the widow, Roger," said Mistress Hazelwood,
with tears gathering in the loving eyes that were raised to
his.

"True, my wife. And you mean that we should continue

to care for them, if they will allow us; that is settled: Guy's
future is my charge, and whatever he and his friends wish
shall, God willing, be done, and I know I may leave his good
mother in your hands. Maude will of course share in every
way with our Evelyn. But this seems too much bound up
with our own comfort and satisfaction, like the soup and
petticoats and blankets that we could not be contented
without giving to our poor sick or old neighbours in the
winter,—just a natural, right thing, you know. Is there not
something that we could do outside of duty, as it were? Not
that I could be anything but an 'unprofitable servant,' after
all; but you know what I mean, Dolly, I'm sure."

Yes, Dolly knew very well: he wanted to do something

for the glory of God simply and solely; something that
would not be in itself a great gratification to himself
personally,—some "threshing-floor" that might cost a price,
and be thus an "offering."

"I have a thought, Roger, but it would be rather an

expensive one; not too much for the occasion, but perhaps
exceed your means."

"Out with it, Dolly; you are not wont to be extravagant."

said he, smiling.

"The Church wants a little repair, Roger; perhaps that

should come first."
 "The Church! Yes, I have been talking with Mr. Herbert
about it, and it must be made safe and comfortable, but
this mere duty still. You don't want me to ornament and
decorate it to show piety, do you, Dolly?"

"No, indeed, nothing of that kind, Roger. I would have it

thoroughly respectable as a place where Christian people
meet to worship God should be, when means permit, but
nothing that could divide a thought with Him, or attract
attention from Him who has promised to be in the midst of
them that meet together in His name, to bless them."

"Right, my dear. No blowing of the wind in the direction

of the pomps and vanities that once disgraced our churches.
Once cleansed, let us keep so. What, then, is this expensive
thought of yours?"

"You know the village of Pine-wood End, and two miles

beyond it, of Brook End?"

"Yes, I do; it was there that the plaguy fox turned tail
and led us our memorable run, that day."

"Well, dear husband, there is no place of worship nor

school-house in either of those villages, and the people
must walk four and five miles to the Falcon Range on
Sundays or stay at home, except when Mr. Herbert is able
to meet them in Farmer Bankes' kitchen, which he is glad to
lend, but which is not large enough for a tithe of the people
who like to attend. Mrs. Falconer and Maude visit the
cottages every week, but they need closer and more regular
instruction among the children. There are also some brick-
fields near, and a very rough ignorant set of work-people
need looking after. Now, Roger, if you could build them a
nice large, airy room for worship on Sundays, and school on
week-days, and provide some true servant of Christ to work
there, preaching the Gospel plainly and lovingly, and
presiding over the schools with a like-minded teacher, I do
think it might be a thank-offering to God which He could
accept and bless."

"This is a good thought, Dorothy. We must consider it

well, count the cost, and do our best. And if it should
involve a little self-denial in some ways—"

"So much the better for us, Roger," said Dorothy,

quickly, "it will then be a perpetual thank-offering, not an
isolated act and done with for ever. What a sweet
remembrance for us every week, dear husband, if we are
giving up something to have our Lord's Truth taught, and
souls saved and families blessed."

"Thou might'st have been in the river with Guy, t'other

day, Dorothy!" said the Squire, admiringly.

"Perhaps the tender pity of my God that day has drawn

me closer to the Water of Life, and every draught of that
stream stimulates the desire to put the same cup into every
hand."

And is it not so?

The Squire, too, was within the charmed circle, and the
expansive principle of Christian love was warming and
winning its way amongst the generous impulses of natural
feeling, consecrating and leading them to the service and
glory of a new Master, whose claims were being
affectionately recognized with a pleasure and peace which
only "he that dwelleth in love" can know.

"But, my dear Dorothy," said the Squire, thoughtfully,

after ways and means had been discussed, "we can build
and prepare, but you know we cannot make the minister:
where shall we find the right man?"

"Dear husband, let us not be faithless, but believing.

God has made the minister, and will produce him when he is
required."

"You are a witch, Dolly, to dare turn prophetess in this

fashion; but I have a notion you are right, so we will do our
part, and wait for the rest."

And, blended with the daily petitions at family prayer,

thenceforth went up one for the success and blessing of the
work, and the provision of a wise godly minister of Christ's
gospel to shepherd the flock at Pine-wood End, and take
charge of the little chapel-of-ease to the Parish Church of
Falcon Range.

Mr. Spadeley had misgivings as to whether it would be

real worship in a building without aged pillars, and pointed
arches, and many-coloured glass, and especially without the
mouldering dust of the hamlet's "rude forefathers"
begetting solemn thoughts of death and decay; but as all
great occasions would rally the people round the old
mother-church, and he himself was undisputed monarch of
the parish graveyard, it did not seem that any great
diminution of his importance would accrue from a small
unpretending neighbour like the little chapel at Pine-wood
End.

So Mr. Spadeley condescendingly took the affair under

his patronage, declared himself as ready as ever to bury the
whole parish on the same terms as before, and exhorting all
who should be favoured with his services to select their
epitaphs in proper time, sagaciously opining that the new
educational advantages to be afforded at Pine-wood End
would greatly facilitate their choice on a subject so
important to posterity.

As the new buildings rose before the delighted eyes of

the village seniors, the juvenile population began to be
painfully aware of some conspiracy against their liberties,
and to indicate resolutions of non-submission to any
schoolmaster or schoolmistress who might be enthroned
behind any formidable desk on earth.

Of the little old mistress of the village dame-school in

her rocking-chair by the fire-side, no one had ever
professed to stand in awe; her rods soon dwindled to a
single twig whenever she set up one, the hard words in her
"Reading-made-easy" got mysteriously blotted, or punched
out, or the books were strangely missing.

And she, poor old lady, declared her firm belief that "the
world was near its end, for never rose the sun upon such a
race of little villains since the days before the flood." For her
part, "how it came to pass that such critters were allowed to
live, was beyond her understanding altogether," and if she
had been arbitress of human destiny, they must have gone
the way of water rats, field mice, and black beetles before
the just indignation of their superiors, resolved to be rid of
such like pests. Mentally she daily transported a room full to
Botany Bay, having some dim idea of that interesting
locality as a sort of reservoir of rubbish whereby this planet
was relieved of objectionable populations.

But in the new schools, the advent of some very

different kind of personage was apprehended, and more
than once, stones had been projected through the apertures
where windows were to be, in anticipation of the treatment
that any head might suffer, bold enough to think of ruling
the pinafore spirits of Pine-wood End.
 Rumours got afloat, however, that the ladies of Falcon
Range had a teacher under training for this post of danger,
and the creaking old sign of "The Falconer's Arms" warned
trustworthy Joe that he might be found to have some
interest in the matter, and sent him on an errand of
remonstrance to the clerk and sexton of the parish, whose
business it was to see to the well-being and safety of the
house of Spadeley.

CHAPTER X.
 SCHOOLS OF THOUGHT.

THERE could be no doubt that Guy Falconer possessed

genius for painting, and that an ardent love of what men
call "Nature" inspired its direction, and ruled his taste. His
efforts indicated a peculiar style of his own, and his friends
were advised to leave it unbiased and unrestricted in its
developments, until it should appear into what school of
study, for detail and experience, it might most suitably be
directed.

With the free air of the country around him, his health
improved, his form grew strong and manly, and his
character began to manifest a vigour and decision which
rendered his associations of the highest importance.

His mother and Mr. Herbert had sought to lay a good

foundation of Christian principles, and if Guy should go
wrong, it would never be from ignorance of right. But they
knew that only the Holy Spirit of God could implant love of
the right, and guide to useful issues the quick perceptions
and firm will which they had prayerfully striven to rescue
from idle waste and natural selfishness.

Without cramping the gaiety of youth, his studies had

been solid and strengthening; what he knew at all, he knew
well, and if he ventured an opinion, it came from no shallow
surface, but from a mine of thought in which it had been
carefully shaped, though more for soundness than for
ornament, and sometimes, perhaps, was also more sincere
than polite.

Mr. Herbert claimed a stated portion of his time for real

hard work in the study, in preparation for a college course
which Mr. Hazelwood particularly desired him to pass
through, and then Guy was free to enjoy his companionship
with the field of vision round him.

And then the morning mist, and evening sunset, the

haze on distant hills, the clouds and sky in storm and calm,
the moonbeam on the river, the foliage of park and wood,
deer and cattle, ivied tower and village cot, by turns caught
the artist's eye, and supplied studies for his pencil.

Thanks to the influences which had hitherto shielded his

life, Guy had learned much of the Creator from His own
written Record, and manifestation in His Son Jesus Christ,
before doing homage to "His eternal power and Godhead" in
"the things that are made;" and when, feeling the
meagerness of human language to express his wondering
appreciation, the sweet words of Divine inspiration came
suitably to his aid, and the Psalmist of Israel had tuned the
lyre to which believing hearts through successive ages
should chant their songs of praise.

And while, in self-abasing contrast with the Divine

Majesty, he exclaimed with David, "'Lord, what is man that
Thou are mindful of him?" * He was able to advance with
Paul into the solution of the mystery, and by faith to "see
Jesus, who was made a little lower than the angels," ‡ a
suffering, sorrowing Man, "that He, by the grace of God,
should taste death for every man," and in the glorious
consummation, having subdued all enemies, and abolished
all consequences of sin from the once perfect creation, will
reinstate the lawful King over His restored inheritance, and
then again shall "His name be excellent in all the earth,"
and all things animate and inanimate respond to their
original intent, and "everything that hath existence shall
praise the Lord."

* Psa. viii. ‡ Heb. ii.

 Guy came to his wide field of study groping after no
"unknown God," but from the presence of "the Truth" alone
commissioned to reveal Him. There is no risk of mistake
when the spirit of man as a learner listens to the Spirit of
God as the teacher, and "looking unto Jesus" apprehends
the mighty import of the Divine proclamation, "This is My
beloved Son, in whom I am well pleased."

Whatever his chosen sphere of duty, the young believer

is thus fore-armed, and Christ has a faithful soldier in the
battle field.

Intent on his congenial occupation, Guy was one day

sketching, beneath a group of trees that might have been
planted specially as an artist's post of observation, the
picturesque village of Pine-wood End, where the new
school-house was becoming prominent against a
background of foliage rising abruptly on a steep hill-side.

An approaching footstep, a little imitation cough failing

to attract his notice, a voice tried effect upon his ear, and
turning round he saw a gentlemanly-looking young man,
who had been pointed out a short time before as the new
tutor to the son of Sir Ryland N— of N— Hall, a
neighbouring landowner.

"I beg your pardon," said he, gaily, "but may I not
presume to admire your work?"

"No, sir," said Guy, smiling; "unless you wish me to

think lightly of your judgment. But you may expend as
much admiration as you please on the scene I am trying to
represent. You will not find many so gracefully combining
variety and interest."
 "Ah! Now you remind me of a landsman trying to
beguile an old sailor," said the young man, laughing. "You
have not travelled, or you would scarcely notice a spot like
this."

"Then I should not care to travel," said Guy. "But it

need not be so. We may travel to admire and wonder,
without losing preference for the land where we live and
love."

"Ah, I see; at present your eyes are in the heart rather

than the head, and I dare say that is very pleasant for the
time. But what if some savage from the desert or jungle,
some oily Greenlander from the icebergs, or thick-headed
Serf from Siberian steppes were to meet you with this
preference theory?"

"I should honour the sentiment, whatever I might think

of his taste," returned Guy; "but I do not allow that
preference indicates want of appreciation."

"Well, well, I can only confess for myself a delight in the

beautiful and good wherever I find it," replied the stranger,
with an air of self-satisfaction that rather provoked his
hearer.

"An equal amount of delight?" he inquired.

"Certainly, according to the nature of the subject. Why

not?"

"Then," said Guy, laughing, "you deserve to go down—

"'To the vile dust from whence you sprung.

 Unwept, unhonoured, and unsung.'"

"Come now, that is a challenge," said the stranger,

seating himself at the foot of the tree, "and I am sure you
will not deny me the right to defend myself. I should like to
convince you that this idea is altogether too narrow and
mean for anything so great and wide as man's capacities of
intellect and affection. We are, as it were, off-shoots of
Deity; we are to emulate our origin, and our sympathies
ought to be as generous and universal. Benevolence and
beauty being our ideal of God, we worship Him in them
wherever they exist, without regard to place or time, or
other associations."

"There must be other associations in my ideal of God,"

said Guy, gravely. "A being all beauty and benevolence
might lack wisdom, power, truth, justice, and we need not
forget that this very want, with inability to comprehend the
union of all such attributes in one Supreme, led to the
multiplication of deities in heathen worship."

"Well, you will grant at any rate that the Supreme Being
whom we worship is a fount of benevolence and beauty,
results of which are spread out everywhere, and
everywhere demanding equal homage and admiration?"

"In what way rendered?" asked Guy, after a pause.

"Oh, in our enjoyment and happiness, our appreciative

instincts, of course. What gives pleasure and makes
happiness for His creatures must derive its own reward in
the bestowal."

"That is to say that my satisfaction in good health, in

the enjoyment of plenty, in a beautiful landscape, is God's
reward for creating such agreeable things, and that He
requires from me no further acknowledgment?—I am
worshipping acceptably in receiving and enjoying?"

"It is not just the way I would put it," said the young
tutor; "but let it stand if you like."

"It is the plain English of your statement," said Guy;

"and suppose for the moment it is granted. It is only one
side of things. Take the other side, in things great or small.
A frightful storm that wrecks ships of all sizes on our
shores, and makes hundreds of widows and orphans in a
night; an earthquake that swallows up the good and bad
alike; the sickness that wastes, the poverty that crushes,
the deformity that revolts, the tears of bitterness that fall
on many an innocent face, what then of your fanciful ideal
of God? How do His attributes of benevolence and beauty
stand in such a contrast? Who enjoys, who has satisfaction
in such scenes? Who renders worship then to Him who is so
beautiful and good?"

"I cannot, of course, enter at once into proofs from

natural philosophy that would meet your argument so far as
the laws of nature are concerned, but doubtless it can be
met. The moral objections are more difficult to understand
and deal with, but I think reason suggests that out of such
seeming ills some hidden good evolves, which, if we knew
it, would vindicate benevolence and goodness to our
satisfaction."

"You have come to my armoury for that weapon to

parry my thrust," said Guy; "you take that view by faith,
and you know it is written in the Book of Truth; your mere
reason could not have discovered it, and I claim the credit
where it is due."
 "I cannot help it if our different schools of thought bring
us to the same conclusion," said the stranger, affecting to
laugh. "Your Book of Truth ought not to contradict my
reason."

"It explains and reconciles what mere reason cannot

reach," said Guy; "and when pressed by facts, your ideal a
Deity snatches a ray from the source of Light and Truth,
which only makes your darkness more visible; but error is
not scrupulous."

"Upon my word, I was not prepared for this encounter,"

said the stranger, gaily; "I usually let people think as they
please, for it is not worth while to disturb them, and I
always give them credit for intending to think and act for
the best."

"Then you have no standard: you let everyone invent

his own God, and admit that all may be equally true, or,
pardon me for adding, care not if all are equally false?"

"Really I prefer to use more courteous terms to myself,

and judge that I exercise Christian charity," said the tutor.

"Not Christian charity, sir, excuse me," said Guy. "True

Christian charity declares God's view of man and his
condition, and the terms on which they can be reconciled.
Sin has made all the disturbance, and caused all the
seeming contradictions, and 'the wages of sin is death; but
the gift of God is eternal life through Jesus Christ our Lord.'
'He that is our God is the God of salvation,' and that He
could not be, if judgment and justice, mercy and truth were
not the attributes of His character, and the essence of His
rule. Benevolence might pity the fallen, and beauty lament
over ruin, but it needed mercy and truth to redeem, while
wisdom planned, and love fulfilled the heavenly scheme
which proved that God is also just, while justifying the
repentant sinner. Pray do not think me presumptuous for
holding the light to your straying steps. Take it for your
own, and they will become safe and steady."

"You seem so much in earnest, young sir, that I will not

charge you with presumption, though methinks more years
have passed over my head than over yours, and my
experiences and advantages have been greater."

"Years should give wisdom," said Guy, "and I should

have been happy to learn from you, had you spoken 'as one
having authority;' but if giants in human learning come and
assail a boy-believer in the God of the Bible, they must
expect a pebble from his sling whether it hits or not, and for
that I cannot apologize."

"The people I meet with seem to find it too much

trouble to think, and it is rather refreshing to find someone
with a mind of his own, so I ask no apology, and shall be
happy to become better acquainted," said the stranger,
offering his card. "Besides, I think you can give me some
information about the school-house yonder. I am told that
religious services are to be conducted there, there, for
which some minister will be required. My position here
leaves a good deal of time on my hands, and if I make up
my mind to take orders, do you think it is open to me to
offer myself for the post?"

"If I am not presumptuous again," said Guy, unable to

conceal his surprise, "I cannot but wonder at the idea of
accepting orders to do what you disapprove of doing. Mr.
and Mrs. Hazelwood intend that 'the gospel of the grace of
God' shall be proclaimed there, and your ideal of God and
human need flatly contradicts it."
 "Oh, but you don't imagine I should treat those rustics
to such subjects as you and I can discuss together! They
must be taught to be honest and sober, and speak the
truth, and obey their superiors."

"Fruit and flowers!" said Guy. "But you will have to do

with thorns and thistles. How will you 'make the tree good'
that it may produce 'good fruit'?"

"Oh, we must have patience, and work them round.

Now one great means of awing and solemnizing such people
has been forgotten: there is nothing striking or impressive
about those buildings; they are too simple and plain, and
will be entered without reverence or fear; but just drop your
ignorant rustics into a magnificent cathedral, and observe
the effect! Why they would feel as if all the gods of the
universe were present there!"

"A flattering estimate of their case, certainly!" said Guy.

"But, notwithstanding, you might happen to find among
them, those who know why they assemble, and could tell
you of One who said, 'Where two or three are gathered
together in my name, there am I in the midst of them.'"
 "Possibly, if you have been taking a class there, for I am
at no loss to know your school of thought by this time. Then
you think if I were to apply to your respected squire, my
success is doubtful?"

"Not at all," said Guy; "you have but to talk about

'schools of thought' at the Moat House, and your design to
grow on 'grapes on thorns,' and 'figs on thistles,' and the
matter would be quite settled."

"Really! Are they so narrow? It is a sad weakness of the

Evangelical school to think none can be right but
themselves. I prefer the grand broad view of God the
benevolent Father of the whole human family, and the
universal brotherhood of man. It is the most comfortable,
good-tempered view of things, I assure you, and gives a
pleasant feeling towards one's fellow creatures."

"Ignorant rustics among the rest?" inquired Guy.

"Certainly. No rushing at people as if they were going to

destruction, and fretting your soul because they won't be
saved."

"But saying, 'Peace, peace, when there is no peace,"

said Guy indignantly. "No, sir, your school of thought has
the wrong head-master; but go to the Moat, and listen to
those who belong to the only school where effectual
instruction can be had; they will tell you far better than I
can of the claims it has on your reverend attention, and
show you a standing more trustworthy than your shifting
sands and slippery self-complaisance."

"If report speaks truly, you have no great reason to

championise the present owner of The Moat," said the
stranger carelessly.
 "Then report as usual is false, sir," returned Guy,
warmly. "It was a good day for me, and for all the Falcon
Range, when it passed into the hands of its present owner."

"I beg your pardon, I thought it might be otherwise."

"And you forget your 'grand broad view' of 'universal

brotherhood' in sympathising with one at the expense of
another," said Guy. "Consistency, I suppose, is too lowly a
study for your lofty school."

The stranger burst into a laugh as he replied,—

"You caught me there, I admit, but do not take me for

an illustration of my 'school'; I am very far from an
accomplished scholar yet."

"I am glad to believe it," said Guy, kindly and frankly:

"your heart is not satisfied, and will not allow you to be as
comfortable as you pretend. Listen to it: it knows God is
saying, 'My Son, give me thine heart,' and inwardly feels,
too, that only He knows what to do with it."

"Is it true," asked the stranger, "that the Falconers'

ancestry belonged to the Catholic Church?"

"Not since the Reformation," said Guy, rather struck

with the terms of the inquiry. "Their chaplain became a
Protestant, and soon the family and retainers followed, for
he read daily from the word of God, and he found no Popery
there. The sexton will be delighted to show you the remains
of the old Bible that was chained to the reading-desk, and
was listened to by the people who gathered from miles
round the country. He can give you the history of those
times, and of several relics of them for which he has great
veneration."
 "Relics! I thought Protestants ignored relics."

"Perhaps these are allowable," replied Guy, smiling,

"giving special significance to words you must know very
well: 'We have heard with our ears, and our fathers have
declared unto us the noble works that Thou didst in their
days, and in the old time before them,' delivering us from
persecution and error, and enabling martyrs to be faithful
unto death. It is a piece of an instrument of torture, and
was used upon the person of one detected reading that very
Bible."

"Another school of thought, you see. Those worthies

thought it dangerous to allow the unlearned to read the
Bible for themselves; then came the pugnacious resolve to
have it and keep it and understand it as each man pleases;
and presently you will be able to pave all our towns with
Bibles that nobody cares for!"

"If every good and right thing were to be set aside

because some abuse it and few know its real value, what
would our civilization come to?" said Guy. "But we are to
remember that though the sower scattered his seed over
the wayside, among stones and thorns 'some fell into good
ground, and brought forth fruit.' So with our Bible: it is 'the
word of the kingdom,' and cannot return void, but must
accomplish that which God pleases, and prosper in the thing
whereto He sends it."

"You have the advantage of me in your knowledge of it,

I am bound to confess," said the tutor.

"It is my 'school of thought,'" returned Guy; "it reveals

the highest, purest knowledge, and being the Word of the
Living God, I must receive it as I find it, neither adding to it
nor taking from it, thereby escaping the snares of both
those 'schools' which by turns seem to have caught your
sympathies."

"I'm afraid there is no hope for me of the pastorate of

Pine-wood End," said the stranger, smiling, "but perhaps I
am better and shall take an early opportunity to call and
make my own impression at The Moat."

Which he did, and it was not a favourable one,

notwithstanding some fascination of manner, and much
general information. He also visited the Church, and after a
long talk with Mr. Spadeley, left that functionary in a
perplexed meditation upon his probable or possible creed.

"Well, well," thought the clerk and sexton, "it is said

that extremes do meet, but I'm fairly posed to know
whether he be most Papist or most unbeliever; but I hope
our Master Guy ain't going to take up with him nor his
ways."

Then after sundry times scratching his head, and

obtaining therefrom no help to a conclusion, he added,
mentally,—

"It's wonderful, it is, how he slips about like an eel, and

when I thought I'd caught him, he was through my fingers
afore I knew it: that's like what they call a Jesuit; then he
sneered at a fine old text that came nowhere but straight
from the Lord Almighty: and that was like what they call
Infidel. So whether he be deep like the one, with Satan to
help him, or shallow like t'other, in the pride of his own
heart, he's a pitiful sight to see. He parson of Pine-wood
End indeed! Not while our good Squire is above ground, any
way, and I'd as lief bury the whole village, school-house and
all, as let such a whirligig set up to daze poor souls as he!