International Financing of Firms

Introduction Finance is an important theme of management. After all the objectives of the organizations are normally expressed (выраженный) in financial terms as many of targets used to assess (оценить) the performance of the organization. Increasingly, senior positions in the management of organizations are occupied by those with financial management training and experience.

Short-Term intra-company financing Short-Term Finance Short-term finance is required to maintain liquidity, and therefore the source of working capital to keep the firm operating on daily basis. Many firms fail (потерпеть неудачу) through lack of liquidity rather than lack (нехватка) of long –term profitability.

Firm may use short-term finance in a number of ways Hold cash balances to pay immediate bills and for emergencies Extend credit to customers –that is – provide debtors possibly in accordance standard practice in a given industry. Hold stock of finished goods awaiting sale or delivery to customers.

Cont….. Pay for work in progress in case of the ongoing works in construction projects The more working capital that is tied up in items, the greater the strain on firm’s finances. Hold stocks of materials and components awaiting incorporation into the production process.

The Sources of Financing The main types of short term finances available are: Bank credit: Overdrafts work on the basis that is granted certain drawing rights by the bank up to a prescribed limit. Thus the firm borrows on a flexible basis according to its needs at a given time. Therefore the faster it is able to collect debt then the less interest charges will be incurred. So construction projects, the quicker a contractor receives interim payments from clients the better.

The Sources of Financing Trade Credit: This has always been a standard practice in construction and many other industries. Essentially, it means that goods are supplied on credit basis. A certain period, within which payment must be made, is normally prescribed, be it 14days, 21days, 28days e.t.c. A firm using trade credit is therefore using somebody else’s money to finance its activities. This means that it is using the other firm, or creditor, as if it were a bank.

Financing by Government Government assistance: There are grants available from the government to developers directly or through a partnership with local authorities. Methods of Development Finance: There are many methods of obtaining development finance from the various sources of development finance cited above. The choice of both source and method of development finance will depend on how much equity (the construction firm own capital) that the firm is able and willing to commit to a scheme.

Resolving of Bank & Corporate loans Bank loans :For many firms, especially the smaller ones, forward-funding is difficult to obtain as they are unable to provide the requested guarantees. Corporate loans: Development companies can arrange overdraft facilities or loan facilities with clearing banks secured on their assets. With corporate lending the bank is concerned with the strength of the company, its assets, profits and cash-flow. Corporate loans can be obtained at lower interest rates than project loans.

Financing through Securities There are various methods available of raising equity and debt finance from institutional investors via the stock exchange. These include: (a) Equity finance which may be through: new shares, right issues or retained earnings (b) Debt finance: Debt finance instruments may be secured on specific property assets or the property assets of the company as a whole. This is done by use

Cont… Bonds: A bond is effectively on ‘I owe you’ note secured on a specific investment property Debentures (долговые обязательства) – These are securities which can be traded on the stock market. They are issued by companies to institutional investors whereby the institution effectively lends money at a rate of interest below market levels in return for a share in the company’s potential growth.

Overdraft An overdraft (кредит по текущему счету) occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply. bankbalanceinterestadditional fees

Reasons for overdrafts Intentional short-term loan - The account holder finds themselves short of money and knowingly makes an insufficient-funds debit. They accept the associated fees and cover the overdraft with their next deposit. Failure to maintain an accurate account register - The account holder doesn't accurately account for activity on their account and overspends through negligence.

Reasons for overdrafts ATM overdraft - Banks or ATMs may allow cash withdrawals despite insufficient availability of funds. The account holder may or may not be aware of this fact at the time of the withdrawal. If the ATM is unable to communicate with the cardholder's bank, it may automatically authorize a withdrawal based on limits preset by the authorizing network.authorizing network Temporary Deposit Hold - A deposit made to the account can be placed on hold by the bank. This may be due to Regulation CC (which governs the placement of holds on deposited checks) or due to individual bank policies. The funds may not be immediately available and lead to overdraft fees.Regulation CC