National capital markets & international financing
Summary of Alan C. Shapiro's Multinational Financial Management Chapter 13
Published on: Mar 3, 2016
Transcripts - National capital markets & international financing
NATIONAL CAPITAL MARKET
AND INTERNATIONAL FINANCING
Someone is sitting
in the shade today
planted a tree
a long time ago.
Multinational Finance Management
8th Edition, Shapiro, Alan C., 2006.
Additional material from Investopedia
Corporate Sources & Uses of Funds
National Capital Markets
Financial Markets vs Financial Intermediaries; Globalization of Financial Markets
As International Financial Centers
World Bank Group; Regional & National Development
Financing large-scale capital investment
To describes trends and differences in corporate
To define securitization and explain the forces that
To explain why bank lending is on the decline worldwide
T o explain what is meant by the globalization of
To identify the functions and consequences of financial
To describe the links between national and
international capital markets
To explain why firms may choose to raise capital
To descibes the types and roles of development banks
Internally Generated Cash
Source of Funds
Short-term External Fund
Long-term External Fund
External finance come from
investor / lender.
Debt is the preferred alternatives
– accounts for the overwhelming
share of external funds.
While, New stock issues play a
relatively small and declining role
in financing investment.
Whether debt/ equity,
the issuer will turn to
investment banker to
assist in designing and
marketing the issue.
And compensated by
the spread between the
price at which they buy
the security and the
price at which they can
resell it to the public.
Any market place where buyers and sellers participate in the trade of
assets such as equities, bonds, currencies, & derivatives.
Typically defined by having transparent pricing, basic regulations on
trading, costs and fees and market forces determining the prices of
securities that trade.
An entity that acts as the middleman between two parties in a financial
Typical intermediary: commercial bank. Also includes investment banks,
insurance companies, broker-dealers, mutual funds and pension funds.
Securitization is the process
through which an issuer
creates a financial instrument
by combining other financial
asset and then marketing
different tiers of the repackaged
instruments to investors.
Print screen from
Trends in external financing:
German, French, & Japanese industry
U.S. & British industry
Recent technological & telecommunications
improvement have greatly reduced the
obtaining and processing
information about the conditions that affect
the creditworthiness of potential borrowers.
Investors are now more likely to find it costeffective to lend directly to companies rather
intermediaries, such as commercial
FINANCIAL SYSTEMS &
Different financial system in terms of
Market-oriented financial system
in U.S. and U.K. (refer to Anglo-Saxon model).
Bank-centered finance financial system
in Germany, France, & Japan (CEJ type financial system).
is a large industrial grouping with a major
bank at the center. Keiretsu ties a complex
web of tradition, cross-shareholding,
trading relationship, management, and
The one-set policy
The cost of accessing
capital market directly
turn to corporate bond
The world has become one vast,
interconnected market. Markets
for government securities &
certain stocks, foreign exchange
trading, interbank borrowing &
lending, operates continously
around the clock and around the
world in enormous
National Capital Market
as International Financial Centers
Facilitate risk transfer & risk mgt.
Exert corporate control
Factors Promoting WellFunctioning Markets
Secure property right
Contract easily enforceable
Meaningful accounting information
Transparent financial statement
Accountability of borrowers &
Borrowers & Investors bear the
consequences of their decisions
Greater capital accumulation
Preffed time pattern of consumption
Stronger economic growth
Greater consumer satisfaction
Financial markets where
foreigner can both borrow and
Channels through which
foreign fund pass
Important Int’l Financial
Germany & France
Requirement for becoming
In’t Financial Center
Foreign Access to
The Foreign Bond Market
Portion of the domestic bond market that represents issues
floated by foreign companies or governments
The Foreign Bank Market
Portion of domestic bank loans suppllied to foreigners for use
The Foreign Equity Market
Placing stocks in foreign market – to diversify the equity
Globalization of Financial Market
has its Downside
Critics for Financial Market globalization:
The investors only seeks for the highest risk-adjusted return,
they will swift to abandon countries whose economic fundamentals
They will demand bigger premium for the risk of holding the
It will lead to the devaluations of the country’s currency.
The devaluation raises the cost of imports and boost its interest
Financial markets are in the business of
gathering and processing information from
savers and borrowers around the worlds in
order to perform their real function, which
is to price capital and allocate to its most
Markets reflect the perceptions of risk and
reward of its participants, and do not
create the underlying reality that caused
the bad perceptions of Financial Markets.
World Bank Group, Regional & National Development Bank
Three types of Development bank:
Regional Development Banks
Function of Development bank:
• provide equity & debt financing to aid in the economic
development of under developed areas.
• Include extending intermediate- to long-term capital directly.
• strengthening local capital markets.
• supplying management consulting services.
World Bank Group: multinational
established at the end of WWII to
help provide long-term capital for
the reconstruction and development
of member countries.
IBRD makes loans for projects of high
A government guarantee is a necessity for
World Bank funding.
Bank’s main emphasized on large
infrastructure projetcs (roads, dams, power
plant, education, & agriculture).
Loans are tied up to debtor nations economic
policies: freer trader, more open investment,
lower budget deficits, & more vigorous private
Finance various projects in the private sector
through loans and equity participations and to
serve as a catalyst for flows of additional
private capital investment to developing
Doesn’t require government guarantees.
Emphasized on manufacturing firm that have
reasonable chance of earning the investor’s
rate of return and will provide economic
benefits of the nation.
Concentrate its lending & equity in
Help companies to conduct business in a more
open and investor-friendly manner.
Founded in 1960, to makes loans (soft/ highly
concessionary) for project in LDCs.
Require a government guarantee.
Regional Development Bank
Provide funds for financing of manufacturing, mining, agriculture,
& infrastructure projects considered important to development.
Regional Development Banks
Leading Regional Development banks
African Development Bank (ADB)
Asian Development Bank (ADB)
European Investement Bank (EIB)
Inter-American Development Bank (IADB)
Atlantic Development Group for Latin America (ADELA)
Arab Fund for Economic & Social Development (AFESD)
National Development Bank
Have the same characteristics of success: they must attract
capable, investment-oriented management; and they must
have large enough supply of economically viable projects.
The raising of funds to finance a project in which the providers of
the funds look primarily to the cash flow from the project as
the source of funds to service their loans and provide the return
of and a return on their equity investment in a project.
Of project financing
Focus on the economically separable nature of investment projects
suitable for project financing.
Nonrecourse lenders have resort only to the project assets and cash
flows (no sponsor).
The underlying assets in project are large, illiquid industrial assets.
Project have a finite life, at the end of which all debt and equity
investors are repaid.
Competition among companies for capital
force them to be more financial transparent, and
improve corporate governance with greater focus on
the rights of shareholder rather than managers.
Presented By: Galih H. Baskoro