14180111 sources of funding for mncs
TRANSCRIPT
8/8/2019 14180111 Sources of Funding for MNCs
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International Financial Markets
& Sources of funding for MNC¶s
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Discussion Plan
Types of Exposures
Sources of Long Term FundsSources of Short Term Funds and Cash
Management in MNC¶s
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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
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Euro Money Market
Euro Currency
Euro Deposits
Euro Loans Loan syndication
Euro Banking
Euro Banking and Central Banks
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ForeignBonds
International Capital Markets
International Bond Market International Equity Market
EuroBonds
EuroBonds
ForeignEquity
Yankee Bonds
Samurai Bonds
Bulldog Bonds
Euro/Dollar
Euro/Yen
Euro/Pounds
ADR GDR
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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 R ate Notes (FR N)
Bulldog Bonds
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International Equity Market
GDR
ADR
EDR
Portfolio Investment vs FDI
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Investors
Company
Lead managers
& Syndicate
Luxemburg
Stock
Exchange
Custodian
DepositoryShares
Mechanism of GDR ¶s
GDR ¶sGDR ¶s
GDR ¶s
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Company
Lead managers
& Syndicate
English Legal
Counsel
Indian Legal
Counsel
Investors
Luxemborg Stock
Exchange
Custodian
Luxemborg
listing Agent
Depository
PR consultant Auditor
Indian Legal
CounselEnglish Legal
Counsel
Euro clear
Cedel & DTC
GDR ¶sShares
Listing Agreement
Depository
Agreement
Subscription
Agreement
Mechanism of GDR ¶s
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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
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External Commercial Borrowings (ECB¶s)
Automatic R oute
Approval R oute
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INTER NATIONAL CASH MGMT
ACCOUNTS R ECEIVABLE MGMT
INVENTOR Y MANAGEMENT
SHOR T-TER M FINANCING
Working Capital Management in MNC¶s
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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
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INTER NATIONAL CASH MGMT
Key Areas:
1. Organization
2. Collection/Fund Disbursement3. Interaffiliate Payments Netting
4. Excess-Funds Investment
5. OptimalG
lobal Cash Balances6. Cash Planning/Budgeting
7. Bank R elations
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Centralised Vs Decentralised CM
Advantages ±
Efficient liquidity levels
Enhanced profitabilityQuicker headquarter action
Decision making enhanced
Better volume currency quotes
Greater cash management expertise
Less political risk
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Disadvantages ±
Complete centralization is practically
impossible
Local problems in dealing with customers
Conflict of interest among parent and
subsidiary
Centralised Vs Decentralised CM
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Techniques to optimise cash flows
Accelerating cash inflows
Managing blocked funds
Leading and Lagging
Netting
Transfer Pricing
Investing excess cash
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Netting
Offset payments of affiliate receivables/ payables
so that net amounts only are transferred
Bi lateral Netting
Multilateral Netting
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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 $
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Sources of short term funds
Trade Credit
Pre Shipment
Post Shipment
Bill Discounting
Export Financing