Lecture 5, part 3

International Financing and National

Capital Markets

CORPORATE SOURCES AND

USES OF FUNDS
I. CORPORATE SOURCES AND USES OF
FUNDS
A. 3 General Sources of Funds:
1. Internally-generated cash
2. Short-term external funds
3. Long-term external funds
B. Forms of Securities
1. Equity
2. Debt: the most preferred form
2

CORPORATE SOURCES AND

USES OF FUNDS
C. Debt Instruments Used
1. Commercial Bank Loans
2. Bonds
a. Publicly issued
b. Privately issued

CORPORATE SOURCES AND

USES OF FUNDS
D. Financial Markets v. Financial Intermediaries
1. Securitization
a. Definition:
replacing bank loans with
securities issued in public
markets.
b. Reflects reduction in access costs
due to
1.) Technological improvements
2.) Globalization

Securitization versus Intermediation

Exhibit_12-1

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

CORPORATE SOURCES AND

USES OF FUNDS
E. Corporate Governance
differences exist and fall into two general categories:
1. Anglo-Saxon (AS) Model
2. Continental European and Japanese (CEJ)
Model
example: keiretsus

The Sony Keiretsu:

A System of Interlocking Directors
TRANSPORT
CO
SUPPLIER
NO.1

SUPPLIER
NO.2
SONY

BANK
NO. 1

BANK
NO. 2
7

CORPORATE SOURCES AND

USES OF FUNDS
F. Globalization of Financial Markets
-has led to
1. Global center competition:
London v. NY v. Tokyo
2. Regulatory arbitrage

NATIONAL CAPITAL MARKET

AS INTERNATIONAL CENTERS
A. Principal Functions of Financial
Centers
1. To transfer purchasing power
2. To allocate funds
between savers and borrowers

The Role of Consequences of Well-Functioning Financia

Markets

Exhibit_12-2

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERS
B. International Financial Market
1. Most important:
a. London
b. New York
c. Tokyo
2. Other Centers for Intermediaries
a. Singapore
b. Hong Kong
c. the Bahamas

11

NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERS
3. Prerequisites to be a global
financial center
a. political stability
b. minimal government
interventions
c. legal infrastructure
d. financial infrastructure

12

NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERS
C. Foreign Access to Domestic Markets
1. The Foreign Bond Market
a. Extension of domestic market
b. Issues floated by foreign cos. or
governments
Examples:
Yankee bonds, samurai bonds

13

NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERS
c. Three Major Types of Foreign Bonds
1.) Fixed rate
2.) Floating rate
3.) Equity related

14

NATIONAL CAPITAL MARKET AS

INTERNATIONAL CENTERS
2. The Foreign Bank Market
a. Extension of domestic markets
b. Important funding source:
Japanese banks for U.S. firms

3. The Foreign Equity Market

a. Cross listing internationally can
1.) diversify risk
2.) increase potential demand
3.) build base of global owners.

15

The International Equity Offering by Deutsche Telekom

Exhibit_12-3

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

quity Raised in U.S. and Non U.S. Public Markets

$Billions)

Exhibit_12-4

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

Equity Raised in U.S. and Non U.S. Public Markets

($Billions) (cont.)

Tableun_p441

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

hare of Global IPOs (Broadly Defined) Captured by U.

xchanges

Exhibit_12-5

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

hare of Global IPOs (Broadly Defined) Captured by U.

xchanges (cont.)

Tableun_p442

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

U.S. Share of Top 20 Global IPOs

Exhibit_12-6

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

ross Listings by Foreign Companies on U.S. Exchange

Number per Year)

Exhibit_12-7a

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

elistings by Foreign Companies from the New York St

xchange (Number per Year)

Exhibit_12-7b

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

General Motors Global Equity Issue

Exhibit_12-8

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.

DEVELOPMENT BANKS
I. The Role of Development Banks
A. General Purpose
founded by governments to help finance
very large infrastructure projects

25

DEVELOPMENT BANKS
B.

Types of Development Banks

1. World Bank Group includes

a. International Bank for Reconstruction
and Development
b. International Development Association
c. International Finance Corporation

26

DEVELOPMENT BANKS
B. Types of Development Banks (cont)
2. Regional Development Banks
finance industry, agricultural,
infrastructure projects
3. National Development Banks
concentrate on a particular industry
region.

27

and

or

nvestment in Infrastructure Projects with Private

articipation in Developing Countries (Billions of Dollar

Exhibit_12-9

Copyright 2014 John Wiley & Sons, Inc. All rights reserved.