International Business Finance

Money may be raised internationally by bond issues and by bank loans.  This is done in domestic as well as international markets. The difference is that  in international markets the money may come in a currency which is different  from that normally used by the borrower. The characteristic feature of the  international bond market is that bonds are always sold outside the country of  the borrower. There are three types of bond, of which two are international  bonds. A domestic bond is a bond issued in a country by a resident of that  country. A foreign bond is a bond issued in a particular country by a foreign  borrower. Eurobonds are bonds underwritten and sold in more than one country. A foreign bond may be defined as an international bond sold by a foreign  borrower but denominated in the currency of the country in which it is placed. It  is Continue reading

The Euro-currency market has no geographical limits or a common  market place. Business is done by telex, telephone and other communication  systems. Internationally-reputed brokers put through the transactions for the  banks. Deposits are secured for the banks operating in the market by the general  guarantee of its parent or holding company and in some cases, by its central  bank and /or the government of the concerned country. Similarly, loans to  commercial parties are guaranteed by their respective governments. Deposits  and loans to banks are, however, not guaranteed except by the banks parent  companies or their exchange control authorities. The amounts of loans and the periods of maturity vary over a wide range  from a few thousands to millions of dollars and from call loans to maturities  extending up to 10-15 years. Some of the loans may be syndicated and jointly  sponsored by a number of banks. There are also varied Continue reading

Equity investment by foreign investors into a country can occur in one or  more of three ways. Foreign investors can directly purchase shares in the stock  market of the country e.g. investment by Foreign Institutional Investors  (FIIs)  in the Indian stock market. Or,  companies from that country can issue shares (or depositary receipts) in the  stock markets of other countries. Finally, indirect purchases can be made  through a mutual fund which may be a specific country fund or a multi-country  regional fund. The Depositary Receipts Mechanism The volume of new equity issues in the international markets increased  dramatically between 1983 and 1987 and again after 1989. The 90’s saw a  growing interest in the emerging markets. From the side of the issuers, the  driving force was the desire to tap low-cost sources of financing, broaden the  shareholder base, acquire a spring board for international activities such as  acquisitions and generally Continue reading

Forward exchange rates, like spot exchange rates are determined by the demand for and the supply of forward exchange. If the supply of forward exchange exceeds the demand for it, the forward rates will be  quoted at a discount over the spot rate i.e., forward exchange rate will be lower than the spot exchange rate. On the other hand, if the demand for forward exchange exceed its supply, the forward rates will be quoted at a premium over the spot rate i.e., forward rate will be quoted at a premium over the spot rate i.e., forward rate will be higher than the spot rate. The demand for forward exchange arise, mainly, from: Imports, Outflow of capital, Arbitrage  operation and Bullish speculation. An importer of foreign goods having to make payment after a certain period of time may contract to purchase foreign exchange in advance to avoid the risk of changes Continue reading