Multinational financial management 7th CH12

Multinational Financial
Management
Alan Shapiro
7th Edition
Power
Points&
bySons
J.Wiley

Joseph F. Greco, Ph.D.
California State University, Fullerton

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CHAPTER 12
INTERNATIONAL
FINANCING AND
NATIONAL CAPITAL
MARKETS

2


INTERNATIONAL FINANCING AND
NATIONAL CAPITAL MARKETS
CHAPTER OVERVIEW:
I. CORPORATE SOURCES AND USES OF FUNDS
II. NATIONAL CAPITAL MARKETS AS
INTERNATIONAL FINANCIAL CENTERS
III. DEVELOPMENT BANKS

IV. PROJECT FINANCE

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I. CORPORATE SOURCES
AND
USES SOURCES
OF FUNDS
I. CORPORATE
OF FUNDS
A.
1.
2.
3.
B.
1.
2.

3 General Sources of Funds:
Internally-generated cash
Short-term external funds
Long-term external funds
Forms of Securities
Equity
Debt: the most preferred form
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CORPORATE SOURCES AND

USES OF FUNDS

C.

Debt Instruments Used
1.
Commercial Bank Loans
2.
Bonds
a.
Publicly issued
b.
Privately issued

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CORPORATE SOURCES AND
USES OF FUNDS
D.

Financial Markets v. Financial
Intermediaries
1.
Securitization
a. Definition:
replacing bank loans with
securities issued in public
markets.
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CORPORATE SOURCES AND
USES OF FUNDS
b.

Reflects reduction in access
costs
due to
1.) Technological
improvements
2.) Globalization

7


CORPORATE SOURCES AND
USES OF FUNDS
E.

Corporate Governance
differences exist and fall into two
general categories:
1.
Anglo-Saxon (AS) Model
2.

Continental European and
Japanese (CEJ) Model
- example: keiretsus

8


CORPORATE SOURCES AND
USES OF FUNDS
F. Globalization of Financial Markets
-has led to
1.
Global center competition
2.
Regulatory arbitrage

9


II. NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS

II.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.
Development of most important:
a.
London
b.
New York
c.
Tokyo

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NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS
2.Other Centers (entrepots)
For intermediaries such as
a.

Singapore

b.

Hong Kong

c.

the Bahamas

to transfer for nonresident suppliers and
users of funds.
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NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS
3. 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
C.
Foreign Access to Domestic Markets
1. The Foreign Bond Market
a. Extension of domestic market
b. Issues floated by foreign cos. or

governments
c. Examples:
yankee bonds, samurai
bonds

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NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS
c.

Three Major Types of Foreign
Bonds
1.) Fixed rate
2.) Floating rate
3.) Equity related

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NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS
2. The Foreign Bank Market
a.
Extension of domestic markets
b.
Important funding source:
Japanese banks for U.S. firms

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NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS
3.The Foreign Equity Market
a.

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

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DEVELOPMENT BANKS
III.

DEVELOPMENT BANKS

A. 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
Reconstruction
and Development
b. International Development
Association
c. International Finance Corporation

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DEVELOPMENT BANKS
B.

Types of Development Banks (con’t)
2.
Regional Development Banks
finance industry, agricultural, and
infrastructure projects

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.
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