1 Multinational Financial Management Alan Shapiro 10 th 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 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. 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 BANK NO. 1 TRANSPORT CO BANK NO. 2 SUPPLIER NO.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 Market 1.Most important: a.London b.New York c.Tokyo 2.Other Centers for Intermediaries a.Singapore b.Hong Kong c.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 Markets 1. 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 Market a.Extension of domestic markets b.Important funding source: Japanese banks for U.S. firms 3.The Foreign Equity Market a.Cross listing internationally can 1.) diversify risk 2.) increase potential demand 3.) build base of global owners.

15 DEVELOPMENT BANKS I. 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 Banks 1.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.

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