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 Fund

International Monetary System

Foreign Exchange Market

MNC’s International Banks International

Capital markets

Financial Euro Money International Financial

Intermediaries Market Institutions
Euro Money Market

Euro Currency
Euro Deposits
Euro Loans
 Loan syndication
Euro Banking
 Euro Banking and Central Banks
 International Capital Markets

International Bond International Equity Market

Market
Foreign Euro Foreign Euro
Bonds Bonds Equity Bonds

•Yankee Bonds •Euro/Dollar ADR GDR

•Samurai Bonds •Euro/Yen
•Bulldog Bonds •Euro/Pounds
International Bond Market

Foreign Bonds Vs Euro Bonds

International 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

 Shares
Depository

Custodian

Luxemburg
Stock GDR’s GDR’s
Exchange Company

Lead managers
& Syndicate
GDR’s

Investors

Mechanism of GDR’s
 Shares GDR’s
Depository

Depository
Custodian Agreement

English Legal Indian Legal

Counsel Counsel

Luxemborg Listing Agreement Euro clear

listing Agent
Company Cedel & DTC
PR consultant Auditor
Subscription
Agreement

English Legal Lead managers Indian Legal

Counsel & Syndicate Counsel

Luxemborg Stock
Exchange
Investors

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 meets
Week 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
Working Capital Management in MNC’s

INTERNATIONAL CASH MGMT

ACCOUNTS RECEIVABLE MGMT
INVENTORY MANAGEMENT
SHORT-TERM FINANCING
 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. Organization
2. Collection/Fund Disbursement
3. Interaffiliate Payments Netting
4. Excess-Funds Investment
5. Optimal Global Cash Balances
6. Cash Planning/Budgeting
7. Bank Relations
 Centralised Vs Decentralised CM

Advantages –
Efficient liquidity levels
Enhanced profitability
Quicker headquarter action
Decision making enhanced
Better volume currency quotes
Greater cash management expertise
Less political risk
 Centralised Vs Decentralised CM

Disadvantages –
Complete centralization is practically
impossible
Local problems in dealing with customers
Conflict of interest among parent and
subsidiary
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

ChinaChina

4m$ 1.75 m $
1m$
6m$
3.5 m $
India India UK UK

2m$

2m$ 1m$
5.25m $
Parent
ParentUSA
USA
Sources of short term funds

Trade Credit
 Pre Shipment
 Post Shipment

Bill Discounting
Export Financing