INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS

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CHAPTER 12

• INTERNATIONAL FINANCING AND NATIONAL CAPITAL
  MARKETS

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Review of Chapter 1

• Three aspects of Financial Management of the MNC
• Capital structure
• Treasurer raises funds through various
  financial instruments (equities debt instruments
  bonds loans) from domestic and international
  financial market.
• Capital budgeting
• Controller allocates investment funds among
  physical and financial investment projects, and
  manages working capital.
• Risk management (Hedging)
• Financial manager tries to minimize political
  and economic risks associated with international
  business through diversification and use of
  Derivatives.

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INTERNATIONAL FINANCING AND NATIONAL CAPITAL
MARKETS

• CHAPTER OVERVIEW
• 1 CORPORATE SOURCES AND USES OF FUNDS
• 2. NATIONAL CAPITAL MARKETS AS INTERNATIONAL
  FINANCIAL CENTERS
• 3. DEVELOPMENT BANKS
• 4. PROJECT FINANCE

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12.1. CORPORATE SOURCES AND USES OF FUNDS

• A. CORPORATE SOURCES OF FUNDS
• - 3 General Sources of Funds
• 1. Internal Financing
• uses Internally-generated cash
• 2. External Financing
• 1) Direct Financing vs. Indirect Financing
  (through Financial Intermediaries)
• 2) Short-term vs. Long-term financing

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• - Forms of Financial Instruments
• 1. Equities stocks shares
• 2. Debts
• 1) bank loans
• 2) bonds (IOU)

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CORPORATE SOURCES AND USES OF FUNDS

• Different Grouping
• 1. Loans
• 2. Marketable Securities
• equity bonds
• public offering vs private placement

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CORPORATE SOURCES AND USES OF FUNDS

• There has been a rapid expansion of
  international securities market due to
• Securitization, which transforms bank loans
  into marketable securities.

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CORPORATE SOURCES AND USES OF FUNDS

• B . Financial System and Corporate Governance
• 1. Financial Market-Oriented Financial System
• - Anglo-Saxon (AS) Model
• with specialized banking traditional
  separation
• between commercial and investment banking
• 2. Bank-Centered Financial System
• - Continental European and Japanese (CEJ)
  Model
• with universal banking
• keiretsu

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CORPORATE SOURCES AND USES OF FUNDS

• C. Globalization of Financial Markets
• -has led to
• 1. Global competition
• 2. Financial Deregulation
• 3. Regulatory arbitrage
• 4. Financial Innovation

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II. NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• 12.2. NATIONAL CAPITAL MARKET AS
• INTERNATIONAL CENTERS
• A. Principal Functions of Financial Centers
• -between savers and borrowers
• 1. To transfer purchasing power
• 2. To allocate funds

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• B. International Financial Market
• 1. International Financial Centre
• a. London
• b. New York
• c. Tokyo

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• 2. International Financial Entrepot(s)
• a. Singapore
• b. Hong Kong
• c. the Bahamas
• d. Bahrain
• e. Luxembourg
• f. Zurich
• g. Frankfurt

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• Prerequisites to be a financial center
• a. political stability
• b. minimal government interventions
• c. legal infrastructure
• d. financial infrastructure

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• B. Foreign Access to Domestic Markets
• 1. Foreign Bond Market
• a. Opening up Domestic bonds market to
  foreigners
• b. Issues floated by foreign cos. or
  governments
• c. Examples
• Yankee bonds, Samurai bonds, Matilda
  bonds Buldog bonds.
• global bonds
• foreign currency denominated bonds
  Shogun bonds, Dragon bonds

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• c.Three Major Types of Foreign
• Bonds
• 1.) Fixed rate bonds
• 2.) Floating rate bonds
• 3.) Equity related bonds
• convertible bonds equity warrants

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• 2. Foreign Bank Market
• a. portion of domestic loans supplied to
  non-residents
• b. Important funding source
• Japanese banks for U.S. firms

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• 3. Foreign Equity Market
• -Selling stocks overseas opening up stock
  market to foreign firms
• -Cross listing internationally can
• 1.) diversify risk
• 2.) increase potential demand
• 3.) build base of global owners.

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL
CENTERS

• D. Downside of Global Financial Markets
• -abrupt shifts in capital flows
• -financial crisis
• - contagion of crisis

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DEVELOPMENT BANKS

• 13.3 DEVELOPMENT BANKS
• General Purpose
• founded by governments to help finance very
  large infrastructure projects.

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DEVELOPMENT BANKS

• B. Types of Development Banks
• 1. World Bank Group includes
• a. International Bank for Reconstructio
  n and Development
• b. International Development
  Association
• c. International Finance Corporation

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DEVELOPMENT BANKS

• B. Types of Development Banks (cont)
• 2. Regional Development Banks
• eg) European Investment Bank
• Asian Development Bank
• African Development Bank
• European Bank for Reconstruction and
  Development
• 3. National Development Banks
• concentrate on a particular industry or
  region.

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IV. PROJECT FINANCE

• PROJECT FINANCE
• frequently used mechanism to finance
  large-scale, long-term capital investments.

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PROJECT FINANCE

• Key Attributes of Project Financing
• 1. Focus on economically separable projects
• 2. Lenders have recourse only to assets and
  cash flows of the project
• 3. Underlying assets are large and illiquid
• 4. Projects have a finite life.