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Multinational Financial Management Alan Shapiro

Lectured byB. Yuliarto Nugroho, Ph.D.University of Indonesia

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CHAPTER 12

INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS

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INTERNATIONAL FINANCING AND NATIONAL CAPITAL MARKETS

CHAPTER OVERVIEW:I. CORPORATE SOURCES AND USES OF FUNDSII. NATIONAL CAPITAL MARKETS AS INTERNATIONAL FINANCIAL CENTERSIII. DEVELOPMENT BANKSIV. PROJECT FINANCE

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I. CORPORATE SOURCES AND USES OF FUNDSI. CORPORATE SOURCES OF FUNDS

A. 3 General Sources of Funds:1. Internally-generated cash2. Short-term external funds3. Long-term external funds

B. Forms of Securities1. Equity2. Debt: the most preferred form

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CORPORATE SOURCES AND USES OF FUNDSC. Debt Instruments Used

1. Commercial Bank Loans2. Bonds

a. Publicly issuedb. Privately issued

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CORPORATE SOURCES AND USES OF FUNDS

D. Financial Markets v. Financial Intermediaries

1. Securitizationa. Definition:

replacing bank loans withsecurities issued in public markets.

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CORPORATE SOURCES AND USES OF FUNDS

b. Reflects reduction in access costs

due to1.) Technological

improvements2.) Globalization

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CORPORATE SOURCES AND USES OF FUNDS

E . Corporate Governancedifferences exist and fall into

two general categories:1. Anglo-Saxon (AS) Model

2. Continental European and Japanese (CEJ) Model

- example: keiretsus

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CORPORATE SOURCES AND USES OF FUNDS

F. Globalization of Financial Markets-has led to

1. Global center competition

2. Regulatory arbitrage

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II. NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS II. NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERSA. Principal Functions of Financial

Centers-between savers and borrowers1. To transfer purchasing

power2. To allocate funds

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS

B. International Financial Market1. Development of most

important:a. Londonb. New Yorkc. 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 stabilityb. minimal government

interventionsc. legal infrastructured. financial infrastructure

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NATIONAL CAPITAL MARKETS 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

c. Examples:yankee bonds, samurai bonds

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS

c. Three Major Types of Foreign

Bonds1.) Fixed rate2.) Floating rate3.) Equity related

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NATIONAL CAPITAL MARKETS AS INTERNATIONAL CENTERS

2. The Foreign Bank Marketa. Extension of domestic

marketsb. 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 Banks1. World Bank Group includes

a. International Bank for Reconstruction and

Developmentb. International Development Associationc. 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 projects3. National Development Banks

concentrate on a particular industry or region.

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IV. PROJECT FINANCE

PROJECT FINANCEfrequently used mechanism to finance large-scale, long-term capital investments.

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PROJECT FINANCE

Key Attributes of Project Financing1. Focus on economically separable projects2. Lenders have recourse only to assets and cash flows of the project3. Underlying assets are large and illiquid4. Projects have a finite life.