International Financial Market

SUB.- MULTINATIONAL FINANCIAL MANAGEMENT

Prepared by: Nirmal yadav Roll No. 54 INSTITUTE OF MANAGEMENT STUDIES

International financial market

Expansion of international financial market
When a multinational enterprise finalises its foreign

investment project, it needs to select particular source, or mix of sources of funds to finance the investment project.


I.

1. Supply aspect.
Sources of funds through channels for international flow of funds.

changing profile of international market

I.

2. Demand aspect Selection of sources of funds by the multinational firm.

Channels for international flow of funds.

The international financial market can be compartmentalized into two segments. 1. International money market. (short term funds.)

International banks and short term securities.

2. international capital market.(medium and long

term funds.)

Irrespective of distinction of segments, there are a number of agencies and instruments through which funds move to the resource-needy institution or firms.

The resource providing agency may be

official OR nonofficial.

International financial market

Official sources Multilateral agencies.
International development banks, such as World Bank, IFC, etc.
Regional development Banks, such as Asian Development Bank.

Bilateral agencies- different government agencies.

Non-official or non-government agencies

Euro currency market / International Banks. International securities market Debt securities. Equities.

Multilateral agencies

The international market has emerged from many structural changes and developments over the years.
The history of development ____ In 1945 (IBRD) was established.(for reconstruction war ravaged
economies of western Europe)
guarantee.)

From 1948 IBRD began development loans.(with gov.

In 1956 (IFC) which provided loans without gov. guarantee and provide equity finance. In 1960 (IDA) was created for the poorer countries of the developing world. cont.

 __ (IBRD) and (IDA) Together came to known as the World bank. In 1966 (ICSID) to encourage investment. In 1988 (MIGA) (To cover the non-commercial risk of the foreign
investors.)

Regional development banks were set up for tuning of the funding in line. ADB began operations from dec. 1966.

Bilateral economic assistance was for the first time announced by U.S. In 1951. Many governments of (OECD) announced external assistance program and bilateral landing. Governments joined hands with private agencies and the export credit form a part of B.A.P.

International banks Euro banks Off-shore Banking centers Euro currency market

Another structural change that took place during 1970s. Syndicated lending involves two or more banks for lending of large amount of loans that were normally not within the capacity of a single bank to provide. For borrower, the cost of syndicated loan was less than individual loans from many banks.

A number of factors emerged on the international scene, which led to a shift from bank lending to growing securitisation in the international financial market.

Bank off-balance sheet activities

These activities were the banks participation in the foreign exchange market.

Selection of sources and forms of funds

When a firm selects a particular source or form of funds, it does so in order to suit its corporate objectives.

Objectives: Minimisation of the effective cost of funds. Avoidance of lengthy legal and procedural formalities. Matching the raised funds with target debtequity.