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