Multinational Financial Management Alan Shapiro 7th Edition Power Points& bySons J.Wiley Joseph F Greco, Ph.D California State University, Fullerton CHAPTER 12 INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS 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 I CORPORATE SOURCES AND USES SOURCES OF FUNDS I CORPORATE OF FUNDS A B General Sources of Funds: Internally-generated cash Short-term external funds Long-term external funds Forms of Securities Equity Debt: the most preferred form CORPORATE SOURCES AND USES OF FUNDS C Debt Instruments Used Commercial Bank Loans Bonds a Publicly issued b Privately issued CORPORATE SOURCES AND USES OF FUNDS D Financial Markets v Financial Intermediaries Securitization a Definition: replacing bank loans with securities issued in public markets CORPORATE SOURCES AND USES OF FUNDS b Reflects reduction in access costs due to 1.) Technological improvements 2.) Globalization CORPORATE SOURCES AND USES OF FUNDS E Corporate Governance differences exist and fall into two general categories: Anglo-Saxon (AS) Model Continental European and Japanese (CEJ) Model - example: keiretsus CORPORATE SOURCES AND USES OF FUNDS F Globalization of Financial Markets -has led to Global center competition Regulatory arbitrage II NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS II.NATIONAL CAPITAL MARKET AS INTERNATIONAL CENTERS A Principal Functions of Financial Centers -between savers and borrowers To transfer purchasing power To allocate funds 10 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS B International Financial Market Development of most important: a London b New York c Tokyo 11 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 12 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 13 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS C Foreign Access to Domestic Markets The Foreign Bond Market a Extension of domestic market b Issues floated by foreign cos or governments c Examples: yankee bonds, samurai bonds 14 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS c Three Major Types of Foreign Bonds 1.) Fixed rate 2.) Floating rate 3.) Equity related 15 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS The Foreign Bank Market a Extension of domestic markets b Important funding source: Japanese banks for U.S firms 16 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 17 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS D Downside of Global Financial Markets -abrupt shifts in capital flows 18 DEVELOPMENT BANKS III DEVELOPMENT BANKS A General Purpose founded by governments to help finance very large infrastructure projects 19 DEVELOPMENT BANKS B Types of Development Banks World Bank Group includes a International Bank for Reconstruction and Development b International Development Association c International Finance Corporation 20 DEVELOPMENT BANKS B Types of Development Banks (con’t) Regional Development Banks finance industry, agricultural, and infrastructure projects National Development Banks concentrate on a particular industry or region 21 IV PROJECT FINANCE PROJECT FINANCE frequently used mechanism to finance large-scale, long-term capital investments 22 PROJECT FINANCE Key Attributes of Project Financing Focus on economically separable projects Lenders have recourse only to assets and cash flows of the project Underlying assets are large and illiquid Projects have a finite life 23 ... Loans Bonds a Publicly issued b Privately issued CORPORATE SOURCES AND USES OF FUNDS D Financial Markets v Financial Intermediaries Securitization a Definition: replacing bank loans with securities... Functions of Financial Centers -between savers and borrowers To transfer purchasing power To allocate funds 10 NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS B International Financial Market... AS INTERNATIONAL CENTERS Prerequisites to be a financial center a political stability b minimal government interventions c legal infrastructure d financial infrastructure 13 NATIONAL CAPITAL MARKETS