1. C H A P T E R 20 Short-Term Financing

2. Chapter Overview A. Sources of Short-Term Financing B. Internal Financing by MNCs C. Why MNCs Consider Foreign Financing D. Criteria Considered for Foreign Financing E. Financing with a Portfolio of Currencies

3. Chapter 20 Objectives This chapter will: A. Explain why MNCs consider foreign financing B. Explain how MNCs determine whether to use foreign financing C. Illustrate the possible benefits of financing with a portfolio of currencies

4. A. Sources of Short-Term Financing 1. Euronotes 2. Euro-Commercial Paper 3. Eurobank Loans

5. B. Internal Financing by MNCs 1. Repeated Financing with a Currency Portfolio a. Before an MNC’s parent or subsidiary in need of funds searches for outside funding, b. it should check other subsidiaries’ cash flow positions to determine whether any internal funds are available.

6. C. Why MNCs Consider Foreign Financing 1. Foreign Financing to Offset Foreign Currency Inflows a. How Avon Used Foreign Financing during the Asian Crisis 2. Foreign Financing to Reduce Costs

7. 20.1 Comparison of Interest Rates among Countries (as of February 2004)

8. D. Criteria Considered for Foreign Financing 1. Interest Rate Parity 2. The Forward Rate as a Forecast

9. D. Criteria Considered for Foreign Financing 3. Exchange Rate Forecast a. Deriving a Value for ef That Equates Domestic and Foreign Rates b. Use of a Probability Distributions

10. E. Financing with a Portfolio of Currencies 1. Repeated Financing with a Currency Portfolio