Global Funds for International Firms

• Global sources of funds for international firms are the various financial resources available to companies operating internationally for raising capital, financing operations, and expanding across borders.
• These sources include equity, debt, and hybrid financial instruments accessible through international markets, financial institutions, investors, and government programs.

Equity Financing

• Foreign Direct Investment (FDI) involves foreign companies or individuals investing directly in the firm’s equity by purchasing shares or making capital contributions.
• Stock Markets (Global IPOs): Companies can raise funds by issuing shares to the public in international stock exchanges, with international firms listing shares in multiple markets to access capital globally.

Debt Financing

• International Bonds: Firms may issue bonds in international debt markets in foreign or internationally recognized currencies like USD or EUR, including Eurobonds, Yankee bonds, or Samurai bonds, depending on the market.
• Bank Loans: International companies may secure loans from foreign banks or international financial institutions like the World Bank or the International Finance Corporation (IFC).

Other Financing Types

• Trade Credit
• Government Grants and Subsidies
• Export Credit Financing

Characteristics of Debt Instruments

• A debt instrument represents a contractual obligation for one party to repay another, including bonds, loans, and debt securities.
• Key characteristics include: Principal Amount, Interest Rate, Maturity Rate, Repayment Terms, Issuer, Security/Collateral, Covenants, Marketability, Risk, Type

Global Bond Market

• The Global Bond Market is the largest segment of the financial market for governments, corporations, and other entities to issue and trade debt securities to raise capital.
• Key components include: Government Bonds, Corporate Bonds, Municipal Bonds, Supranational Bonds, Green Bonds & ESG Bonds

International Banking

• International banking refers to banking services operating across different countries, involving financial transactions, investments, and services beyond national borders.
• Examples include: HSBC (UK), Citibank (USA), Deutsche Bank (Germany), Standard Chartered (UK)

Types of International Banking

• Correspondent Banking: A local bank partners with a foreign bank to offer services in another country.
• Representative Offices: A bank opens a small office in another country to provide customer support and market research.
• Foreign Branch Banking: A bank from one country opens a full-service branch in another country.
• Subsidiary Banks: A bank sets up a separate legal entity in another country, operating independently but owned by the parent bank.
• Offshore Banking: Banks operate in countries with favorable financial regulations, lower taxes, and strict privacy laws.
• International Investment Banking focuses on global financial services like mergers and acquisitions, raising capital, and managing large-scale investments.

International Bank Loans

• International bank loans refer to loans provided by financial institutions across national borders to governments, corporations, or financial institutions in other countries.
• Major international lenders include: World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), African Development Bank (AfDB), Inter-American Development Bank (IDB), European Investment Bank (EIB)

Types of International Bank Loans

• Syndicated Loans: Large loans provided by multiple banks to a single borrower to spread risk.
• Export Credit Loans: Loans issued to support export activities, often backed by government agencies.
• Project Finance Loans: Long-term loans used for infrastructure and development projects.
• Trade Finance Loans: Short-term loans to facilitate international trade transactions
• Sovereign Loans: Loans given to governments or state-owned enterprises.
• Corporate International Loans: Loans issued to multinational companies for expansion or operations.

International Equity Financing

• International equity financing involves raising capital from foreign investors by issuing equity shares in global markets.
• This allows companies to expand operations, enter new markets, and diversify their investor base.

Types of Equity Financing

• Angel investment
• Venture capital
• Corporate venture capital
• Private equity
• Equity crowdfunding
• Initial public offering (IPO)
• Expansion capital

Benefits of International Equity Financing

• Access to Larger Capital Pools: Enables companies to secure funds beyond domestic markets.
• Market Expansion: Enhances global presence and business opportunities.
• Diversification of Investor Base: Reduces reliance on local investors and mitigates risks.
• Enhanced Brand Recognition: Increases credibility and international reputation.
• Favorable Valuations: Foreign markets may offer better valuation opportunities.

Risks and Challenges of International Equity Financing

• Regulatory Compliance: Different countries have varying legal and financial regulations.
• Foreign Exchange Risk: Currency fluctuations can impact earnings and returns.
• Political and Economic Risks: Instability in foreign markets may affect investor confidence.
• Increased Reporting Requirements: Compliance with multiple jurisdictions requires transparency and adherence to international standards.
• Market Perception: Investor sentiment in foreign markets can influence stock performance.

International Stock Markets

• A stock market is a place where investors buy and sell shares of publicly traded companies.
• A "tour" of international stock markets means exploring major stock exchanges across different countries, understanding how they operate, and identifying investment opportunities outside one's home country.

Major Stock Exchanges

• New York Stock Exchange (NYSE, USA) is the largest exchange globally, home to companies like Apple and Microsoft.
• NASDAQ (USA) is a technology-focused exchange with stocks like Google, Amazon, and Tesla.
• London Stock Exchange (LSE, UK) is one of the oldest and most important stock markets in Europe.
• Tokyo Stock Exchange (TSE, Japan) is the largest exchange in Asia, listing companies like Toyota and Sony.
• Shanghai Stock Exchange (SSE, China) is a fast-growing market in China.
• Bombay Stock Exchange (BSE, India) is one of the largest stock markets in an emerging economy.

Stock Market Indices

• Dow Jones Industrial Average (DJIA, USA) tracks 30 major US companies.
• S&P 500 (USA) includes 500 large US companies.
• NASDAQ Composite (USA) focuses on technology companies.
• Nikkei 225 (Japan) represents Japan’s top companies.
• Sensex (India) is India’s key stock index.

Factors Affecting Stock Markets

• GDP growth: A strong economy leads to a rising stock market.
• Inflation and interest rates: High inflation can make stock prices fall.

Global Investing & Diversification

• Exchange-Traded Funds (ETFs) allow investors to buy a mix of international stocks.
• Mutual Funds are professionally managed funds that include global stocks.
• American Depositary Receipts (ADRs) provide a way for US investors to buy foreign stocks.
• Direct Stock Purchases: Investors can directly buy stocks from international markets.

International Cross-Listing

• Cross-listing refers to a company listing its equity shares on one or more foreign stock exchanges in addition to its domestic exchange.

Process of Cross-Listing

• Compliance with foreign exchange listing standards.
• Registration with the foreign securities commission.
• Reconciliation of financial reports with the host country’s accounting standards (e.g., GAAP for U.S. listings).

Depository Receipts (DRs)

• Depository Receipts are financial instruments representing shares in a foreign company, held by a custodian bank in the company’s home country.
• American Depositary Receipts are traded in the U.S. and denominated in U.S. dollars.

Types of ADRs

• Level I ADR : Traded over-the-counter (OTC)
• Level II ADR: Listed on major U.S. stock exchanges (NYSE, NASDAQ).
• Level III ADR: Companies use this to raise capital in the U.S. by issuing new shares.
• Rule 144A ADRs (RADRs): capital-raising ADRs that allow foreign companies to privately place securities in the U.S.

Types of Depository Receipts

• GLOBAL DEPOSITARY RECEIPTS (GDRs) are listed on multiple stock exchanges and settle in different currencies.
• EUROPEAN DEPOSITARY RECEIPTS (EDRS) are similar to ADRs but issued in Europe.

Advantages of Cross Listing

• LIQUIDITY- When a company cross-lists on a larger market with more liquidity, it reduces transaction costs, making the stock more attractive.
• WIDER SHAREHOLDER BASE- Cross-listing increases a company’s visibility, making more investors aware of the stock.
• MARKET INTEGRATION- By cross-listing in a major market, companies make their shares more accessible to foreign investors, reducing barriers.
• CORPORATE GOVERNANCE AND INVESTOR TRUST- Strong investor protection and accounting standards build trust, attracting investors and boosting stock prices.
• CAPITAL NEEDS AND GROWTH OPPORTUNITIES- Fast-growing companies use cross-listing to raise funds in larger, global markets, with better financing terms and increased funds.

Disadvantages of Cross-Listing

• COSTS OF CROSS-LISTING include initial (one-time fees) and ongoing costs (regular financial and business activity reports).
• The PROBLEM OF DISCLOSURE is that listing on a foreign exchange requires companies to disclose more information about their business.
• LOSS OF CONTROL occurs because cross-listing forces firms to follow stricter shareholder protection rules and disclose more information to investors.

Strategic Alliances

• Strategic Alliances are business agreement between two or more companies to share resources and work together on a specific project.
• Joint venture: Occurs when two or more independent firms form and jointly control a different entity created to pursue a specific objective.
• Strategic Alliances are most appropriate for companies wanting to exchange technical expertise or when there are legal, regulatory, or cultural constraints that might prevent, say, an acquisition of one company by another.