International Finance

International finance is the branch of economics that studies the dynamics of foreign exchange,foreign direct investment and how these affect international trade. Also studies the international projects, international investment and the international capital flow .International Finance can be broadly defined, as the study of the financial decisions taken by a multinational corporation in the area of international business i.e. global corporate finance. International finance draws much of its background from the preliminary studies in the topics of corporate finance such as capital budgeting, portfolio theory and cost of capital but now viewed in the international dimension.

Short-Term Financing of Multinational Corporations

Financing the working capital requirements of  a multinational companies foreign affiliates poses a complex decision problem.  This complexity stems from the large number of financing options available to the  subsidiary of an MNC. Subsidiaries have access to funds from sister affiliates and  the parent, as well as external sources. This article focuses on developing  policies for borrowing from either within or without the companies when the risk  of exchange rate changes is present and different tax rates and regulations are in  effect.

There are four aspects of short-term overseas financing strategy namely;

  1. Identifying the key factors,
  2. Formulating and evaluating objectives,
  3. Describing available short-term borrowing options and
  4. Developing a methodology for calculating and comparing the effective after-tax  dollar costs of these alternatives.
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Syndicated Euro Credits

History of  Syndicated  Euro Credits

Syndicated Euro Credits are in existence  since the late 1960s. The first syndicate was  organized by Bankers Trust in an effort to  arrange a large credit for Austria. During  the early seventies, Euromarkets saw the  demand for Euro credits increasing from  non-traditional and hitherto untested  borrowers. The period after first oil crisis  was marked by a boom phase. To cope with  the increasing demand for funds, lenders  expanded their business without  undertaking due credit appraisal of their  clients or the countries thus financed.  Further, the European banks had short-term  deposits while bulk of borrowers required  long-term deposits.… Read the rest

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Types of Foreign Bonds

Yankee Bonds

Yankee Bonds are US dollar denominated issues by foreign  borrowers (usually foreign governments or entities,  supranationals and highly rated corporate borrowers) in  the US bond markets. Yankee bond has certain peculiar  features associated with the US domestic market. SEC  regulates the international bond issues and requires  complete disclosure documents in detail than the  prospectus used in Eurobond issues. Foreign borrower will have to adopt the US accounting practices and the  US credit rating agencies will have to provide rating for  these bonds. These bonds are sponsored by a US  domestic underwriting syndicate and require SEBI (Securities  and Exchange Board of India) registration prior to selling them in  the domestic US market.… Read the rest

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Euro Notes and Euro Commercial Paper

Euro Notes

Euro Notes are like promissory notes issued by companies for obtaining short term  funds. They emerged in early 1980s with growing securitization in the international financial  market. They are denominated in any currency other than the currency of the country where  they are issued. They represent low cost funding route. Documentation facilities are the  minimum. They can be easily tailored to suit the requirements of different kinds of  borrowers. Investors too prefer them in view of short maturity.

When the issuer plans to issue Euro notes, it hires the services of facility agents or the  lead arranger. On the advice of the lead arranger, it issues the notes, gets them underwritten  and sells them through the placement agents.… Read the rest

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International Bonds

International bonds are a debt instrument. They are issued by international agencies,  governments and companies for borrowing foreign currency for a specified period of time.  The issuer pays interest to the creditor and makes repayment of capital. There are different  types of such bonds. The procedure of issue is very specific. All these need some explanation  here.

Types of International Bonds 1. Foreign Bonds and Euro Bonds

International bonds are classified as foreign bonds and Euro bonds. There is a  difference between the two, primarily on four counts. First, in the case of foreign bond, the  issuer selects a foreign financial market where the bonds are issued in the currency of that  very country.… Read the rest

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International Money Market

A money market is a market for instruments and a means of lending (or investing) and  borrowing funds for relatively short periods, typically regards as from one day to one year.  Such means and instruments include short term bank loans. Treasury bills, bank certificates  of deposit, commercial paper, banker’s acceptances and repurchase agreements and other  short term asset backed claims.

As a key elements of the financial system of a country, the money market plays a  crucial economic role that if reconciling the cash needs of so called deficit units (such as  farmers needing to borrow in anticipation of their later harvest revenues), with the investment  needs of surplus units (such as insurance companies wanting to invest cash productively prior  to making long term investment choices).… Read the rest

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