Post on 13-Nov-2014
description
International Financial Markets& Sources of funding for MNC’s
Discussion Plan
Types of Exposures
Sources of Long Term Funds
Sources of Short Term Funds and Cash Management in MNC’s
International Financial Environment
International Monetary System
International BanksMNC’s
International Financial Institutions
Financial Intermediaries
International Capital markets
Foreign Exchange Market
International Monetary Fund
Euro Money Market
Euro Money Market
Euro Currency
Euro Deposits
Euro Loans Loan syndication
Euro Banking Euro Banking and Central Banks
Foreign Bonds
International Capital Markets
International Bond Market
International Equity Market
Euro Bonds
Euro Bonds
Foreign Equity
•Yankee Bonds•Samurai Bonds•Bulldog Bonds
•Euro/Dollar•Euro/Yen•Euro/Pounds
ADR GDR
International Bond Market
Foreign Bonds Vs Euro BondsInternational Debt Instruments Straight Euro Bonds Convertible Euro Bonds Bonds with warrants Currency cocktail Yankee Bonds Samurai Bonds Floating Rate Notes (FRN) Bulldog Bonds
International Equity Market
GDR
ADR
EDR
Portfolio Investment vs FDI
Investors
Company
Lead managers & Syndicate
Luxemburg Stock
Exchange
Custodian
DepositoryShares
Mechanism of GDR’s
GDR’sGDR’s
GDR’s
Company
Lead managers & Syndicate
English Legal Counsel
Indian LegalCounsel
Investors
Luxemborg Stock Exchange
Custodian
Luxemborg listing Agent
Depository
PR consultant Auditor
Indian LegalCounsel
English Legal Counsel
Euro clear Cedel & DTC
GDR’sShares
Listing Agreement
Depository Agreement
Subscription Agreement
Mechanism of GDR’s
GDR’s
Pre Issue Discuss Strategy, Obtain legal advice, prepare tentative plan of issue
Week 0-4 Nominate Lead Manager, co managers, depository, bankers etc.
Week 5-7 Meetings between LM, auditors, legal advisors, preparation of official circular
Week 8 LM completes & sends preliminary offer offer document to co-managers & underwriters.
Week 9 Road shows and investor meetsWeek 10 Launch & syndication by LM, foreign
listing, trading approval etc.
GDR’s
Advantages Easy access to foreign capital markets Lower leverage and reduces interest rate burden No Cash redemption Free of foreign exchange risk Stabilisation effect from enhancing trading facility
Disadvantages Immediate EPS dilution Dividends not tax deductible No downside protection for investors
FCCB’s
Advantages Sell Shares at Premium No immediate EPS dilution Appeals to defensive investor No bond repayment if converted
Disadvantages Increase leverage Increase interest burden Foreign exchange risk
External Commercial Borrowings (ECB’s)
Automatic Route
Approval Route
INTERNATIONAL CASH MGMT
ACCOUNTS RECEIVABLE MGMT
INVENTORY MANAGEMENT
SHORT-TERM FINANCING
Working Capital Management in MNC’s
Working Capital Management in MNC’s
Objective of Cash Management in MNC- To maximize return by proper allocation of
short term investments To minimize cost of borrowing by accessing
different money markets
INTERNATIONAL CASH MGMT
Key Areas:1. Organization2. Collection/Fund Disbursement3. Interaffiliate Payments Netting4. Excess-Funds Investment5. Optimal Global Cash Balances6. Cash Planning/Budgeting7. Bank Relations
Centralised Vs Decentralised CM
Advantages –Efficient liquidity levelsEnhanced profitabilityQuicker headquarter actionDecision making enhancedBetter volume currency quotesGreater cash management expertiseLess political risk
Disadvantages –
Complete centralization is practically impossible
Local problems in dealing with customers
Conflict of interest among parent and subsidiary
Centralised Vs Decentralised CM
Techniques to optimise cash flows
Accelerating cash inflows
Managing blocked funds
Leading and Lagging
Netting
Transfer Pricing
Investing excess cash
Netting
Offset payments of affiliate receivables/ payables so that net amounts only are transferred
Bi lateral Netting
Multilateral Netting
Transfer Pricing
China
India
Parent USA
UK
China
India
Parent USA
UK
4 m $
1 m $ 6 m $
1.75 m $
5.25m $
1 m $
2 m $
3.5 m $
2 m $
Sources of short term funds
Trade Credit Pre Shipment Post Shipment
Bill Discounting
Export Financing