Financing Business Operations/ Pembiayaan operasi bisnis

Dalam operasi keuangan bisnis, dimana sumber pendanaan dibutuhkan untuk :

Membayar biaya operasi

Menambah kapasitas produksi

Memasuki pasar baru

Develop and reward employee

Menginvestasikan proyek baru

Financial resoruces needed to :

Pay operating expenses

Expand production capacity

Enter new geographic markets

Develop and reward employees

Invest in new projects

Sumber pendanaan dapat diperoleh dari borowing, issuing equity, internal funding, capital
structure

Borrowing (debt): often not easy/possible in international contexts2.

Issuing equity (selling shares): quite complicated in international
context3.
Internal funding (parent company covers the bill): cross-border money
transfer is often a challenge
Borrowing – can be made with both local or international agencies or the capital from the
parent company

(-) Kesulitas melakukan pinjaman

Exchange at risk

Restriction on currency convertability

Restriction on the international flow capital

Exchange pada risiko

Pembatasan pada konvertabilitas mata uang

Pembatasan modal aliran internasional

(+) ketika nilai mata uang lokal jatuh

Back to back loan - back to back loan is where the parent company deposits money in the
host country bank, which then lends money to subsidiaries in the host country.

Back to back loan are often used to finance affiliates located in countries with high interest
rates or restricted capital market or with a danger of currency controls and different tax
rates applied to loans from a bank.

A loan which two multinational companies in separate countris borrow each other’s
currency for a specific period of time, and repay the other’s currency at an agreed maturity.
The loan is conducted outside the foreign exchange market and often channeled through a
bank as an intermediary

As described in the following image: about the back to back loan process between the
Mexican parent company company and the U.S.

Parent company deposits money with a host-country bank, which then lends the money to a
subsidiary in the host country

issuing equity = companies can access to pools of investors with funds that are unavailable
locally by issuing stock

internal funding = companies can be financed internally, whether with funds suppl by the
parent company or by its international subsidiaries

What Is Financing?
Financing is the process of providing funds for business activities,
making purchases, or investing. Financial institutions, such as
banks, are in the business of providing capital to businesses,
consumers, and investors to help them achieve their goals. The use
of financing is vital in any economic system, as it allows companies
to purchase products out of their immediate reach.

Borrowing - Banks in your home country are reluctant to lend money to

finance operations overseas, mainly due to risk concerns (e.g., asset
repossession difficult)
•Currency exchanges/inconvertibility

•No credit history in foreign locations makes it difficult to borrow from

local banks

•Regulation restrictions on capital flows across border/to foreign

companies
Inconvertible currency, also known as non-convertible or blocked
currency, refers to money in which exchanges into another
country's currency is not allowed. These are several reasons
for making a money inconvertible including foreign exchange
regulations, government restrictions, physical barriers, political
sanctions, or extremely high volatility.

How Inconvertible Currencies Work

Currency convertibility is the ease with which a country's currency
can be converted into gold or another currency. Currency
convertibility is important for international commerce as globally
sourced goods must be paid for in an agreed upon currency that
may not be the buyer's domestic currency. When a country has
poor currency convertibility, meaning it is difficult to swap it for
another currency or store of value, it poses a risk and barrier to
trade with foreign countries who have no need for the domestic
currency.

Inconvertible currency refers to money in which exchanges into

another country's currency is not allowed, typically in forex markets.

When doing business internationally, back-to-back loan is often the only option to
finance operations overseas. Basically, it’s a pre-paid loan (pre-payment done by
parent company). Helps establish credit history and avoid some hassle of frequent
cross-border money transfer

exchange rates have a substantial influence on companies’ operations and profitability.

 The exchange rate risk is caused by fluctuations in the

investor’s local currency compared to the foreign-investment
currency.
  These risks can be mitigated through the use of a hedged
exchange-traded fund or by the individual investor using
various investment instruments, such as currency forwards or
futures, or options. 
 Exchange rate risk isn’t completely avoidable but it can be
mitigated. 

Exchange rate risk cannot be avoided altogether when investing

overseas

Risiko nilai tukar disebabkan oleh fluktuasi dalam mata uang lokal investor
dibandingkan dengan mata uang investasi asing dan exchange rate risk tidak
bisa dihindari altogether when investing overseas

What is Borrowing ? Borrowing is like when you borrow a money from your friend and you
have to be repaid the money in period of time. Like that. But in this case, the definition of
borrowing (debt) is Borrowing (debt) is borrowed money from another party with the
agreement that the money will be repaid. Most borrowers borrow at interest, meaning they
pay a certain percentage of the principal amount the lender as compensation for borrowing.
Most loans also have a maturity date by which time the borrower must have repaid the loan
like monthly, half yearly or towards the end of the loan tenure . Borrowing can be made with
both local or international agencies or the capital from the parent company.