Multinational Financial Management Alan Shapiro 7 th Edition

Multinational Financial Management Alan Shapiro 7 th Edition J. Wiley & Sons Power Points by Joseph F. Greco, Ph. D. California State University, Fullerton 1

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 3

I. CORPORATE SOURCES AND USES OF FUNDS I. CORPORATE SOURCES OF FUNDS A. 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 Used 1. Commercial Bank Loans 2. Bonds a. Publicly issued b. Privately issued 5

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. 6

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 10

NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS B. International Financial Market 1. 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 3. 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 1. 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 2. 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 1. 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) 2. Regional Development Banks finance industry, agricultural, and infrastructure projects 3. National Development Banks concentrate on a particular industry or region. 21

IV. PROJECT FINANCE frequently used mechanism to finance large-scale, long-term capital investments. 22

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. 23