1

Multinational Financial Management Alan Shapiro10th Edition

John Wiley & Sons, Inc.

PowerPoints by

Joseph F. Greco, Ph.D.

California State University, Fullerton

CHAPTER 12

International Financing and National Capital Markets

3

CORPORATE SOURCES AND USES OF FUNDS

I. CORPORATE SOURCES AND USES OF FUNDSA. 3 General Sources of Funds:

1. Internally-generated cash

2. Short-term external funds

3. Long-term external funds

B. Forms of Securities

1. Equity

2. Debt: the most preferred form

4

CORPORATE SOURCES AND USES OF FUNDS

C. Debt Instruments Used1. Commercial Bank Loans

2. Bonds

a. Publicly issued

b. Privately issued

5

CORPORATE SOURCES AND USES OF FUNDS

D. Financial Markets v. Financial Intermediaries1. Securitization

a. Definition:replacing bank loans withsecurities issued in public markets.

b. Reflects reduction in access costs due to

1.) Technological improvements

2.) Globalization

6

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

7

The Sony Keiretsu:A System of Interlocking Directors

SONY

SUPPLIER NO.1

BANKNO. 1

TRANSPORTCO

BANKNO. 2

SUPPLIERNO.2

8

CORPORATE SOURCES AND USES OF FUNDS

F. Globalization of Financial Markets-has led to

1. Global center competition:London v. NY v. Tokyo

2. Regulatory arbitrage

9

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

A. Principal Functions of Financial Centers

1. To transfer purchasing power

2. To allocate funds

between savers and borrowers

10

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

B. International Financial Market1. Most important:

a. London

b. New York

c. Tokyo

2. Other Centers for Intermediariesa. Singaporeb. Hong Kongc. the Bahamas

11

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

3. Prerequisites to be a global financial center

a. political stability

b. minimal government interventions

c. legal infrastructure

d. financial infrastructure

12

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

C. Foreign Access to Domestic Markets1. The Foreign Bond Market

a. Extension of domestic market

b. Issues floated by foreign cos. or

governments

Examples:

Yankee bonds, samurai bonds

13

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

c. Three Major Types of Foreign Bonds

1.) Fixed rate

2.) Floating rate

3.) Equity related

14

NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS

2. The Foreign Bank Marketa. Extension of domestic marketsb. Important funding source:

Japanese banks for U.S. firms

3. The Foreign Equity Marketa. Cross listing internationally can

1.) diversify risk2.) increase potential demand3.) build base of global owners.

15

DEVELOPMENT BANKSI. The Role of Development Banks

A. General Purpose

founded by governments to help finance

very large infrastructure projects

16

DEVELOPMENT BANKS

B. Types of Development Banks1. World Bank Group includes

a. International Bank for Reconstruction and Development

b. International Development Association

c. International Finance Corporation

17

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.

Copyright 2014 John Wiley & Sons, Inc.

All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.