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Chapter 6: Sourcing Finance/Capital Globally

• Firms often seek capital beyond their domestic markets to enhance growth and financial stability.
• Understanding global finance dynamics is critical.
• Optimum cost of capital: Companies aim for the lowest possible cost of capital while maintaining an efficient capital structure (balancing debt and equity). This involves assessing risk and return trade-offs.
• Financial/Capital structure: A well-structured capital framework supports growth strategies, manages risk, and maximizes shareholder value.
• Global equity sourcing: Companies can list their shares on foreign exchanges for broader investor bases and potentially lower costs.
• Cross-Listing: Listing shares on multiple exchanges increases visibility and liquidity, attracting global investors.
• Depository Receipts (ADRs/GDRs): Represent company shares in foreign markets without full listing.

Advantages of Global Equity Sourcing

• Access to greater capital.
• Diversification of investment risks across markets.
• Enhanced company profile and reputation, attracting more investors.

Disadvantages of Global Equity Sourcing

• Complex and costly regulatory environments.
• Increased scrutiny from international investors.
• Exposure to market volatility.

Raising Global Equity Financing

• Conduct thorough market research: Understand investor preferences, regulations, and the competitive landscape.
• Engage financial advisors; consult investment banks and legal advisors.
• Develop a compelling investor pitch; clearly articulate value proposition, growth strategy, and risk management.

Different Methods for Raising Global Equity Financing

• Private Placements
• Venture Capital/Private Equity
• Strategic Partnerships/Alliances

Chapter 5: Summary of the Foreign Exchange Market

• The foreign exchange market (FX market) is a decentralized global marketplace for trading national currencies.
• Operates 24 hours a day, 5 days a week.
• Participants: Central banks, commercial banks, investment banks, financial institutions, corporations, brokers, and retail traders.
• Currency Pairs: Currencies are traded in pairs (e.g., EUR/USD).
  • The first currency is the base currency, the second is the quote currency.
• Types of transactions:
  • Spot transactions: Immediate currency exchange at the current market rate.
  • Forward contracts: Agreements to exchange currencies at a predetermined rate on a future date; used to hedge against currency risk.
  • Futures contracts use standardized contracts on exchanges for speculation and hedging.
• Market Mechanics: The FX market operates on a network of banks, brokers, and electronic trading platforms; prices influenced by economic indicators, geopolitical events, and market sentiment.
• Speculators/Arbitrageurs:
  • Speculators: Profit from currency fluctuations.
  • Arbitrageurs: Exploit price discrepancies across markets by executing simultaneous buy and sell orders.
• Central Bank Impact: Central banks intervene in the market to stabilize or influence their currency's value.

Chapter 9: Functions of the FX market

• The FX market facilitates the conversion of one country's currency into another.
• This allows buyers from one country to buy goods, services, or assets from another.
• Currency transactions are often made in the seller's currency, but both parties can decide on a mutually agreed currency.
• Access to the FX market is necessary when one party needs to convert their currency into required currency for the transaction to complete.

Chapter 10: The Need for Credit in Trade

• Manufacturing and shipping goods take time and require working capital.
• Exporters often need financing to produce and deliver goods to the buyer.
• Exporters use letters of credit (LCs) issued by the buyer's bank to secure loans.
• LCs guarantee payment to the exporter once the goods are shipped, providing security for both the exporter and buyer.
• Bankers' Acceptances (B Acc): are a financial instrument issued by a bank representing a promise to pay a specified amount on a future date. Used by importers/buyers to assure payment to exporters.
• Credit instruments (LCs and B Accs) streamline international trade, reduce risks, and enable smooth cross-border transactions.

Chapter 11: Hedging - The Foreign Exchange Market

• Hedging involves transferring Foreign Exchange (FX) risk from one party to another.
• Hedging techniques in FX markets use financial contracts like spot contracts, futures contracts, options contracts, and swap contracts.
• The purpose of hedging is to protect against unfavorable movements in exchange rates.

Chapter 12: Participants in FX Market

• Liquidity Seekers: Trade based on operational needs, facilitating transactions (not profits).
• Profit Seekers: Trade for financial gain, taking advantage of currency fluctuations (speculators/arbitragers).
• Bank Dealers: Large international banks; actively buying/selling currencies to "make the market."
• Non-Bank Dealers: Smaller banks and currency exchange offices; primarily focused on closing customer positions to manage liquidity needs.

Chapter 7: Direct Investment

• Foreign Direct Investment (FDI) is an investment by individuals, companies, or governments from one country into business activities in another country.
• Includes establishing subsidiaries, joint ventures, new facilities, etc.
• Common Types: Greenfield, Brownfield, and Joint Ventures
  • Greenfield: Establishing brand-new operations.
  • Brownfield: Aquiring/leasing existing facilities.
  • Joint Ventures: Partnering with local firms to share resources.
• FDI decisions are influenced by factors like: long-term investments, control/influence, and availability of natural resources, cheaper labor, etc.
• Potential benefits for the home country include: access to foreign capital, job creation, and infrastructure development.
• Potential challenges for the host country include loss of domestic control, risk of profit repatriation, and environmental/cultural impacts.

Chapter 7: Summary of FDI

• Acquisition: Purchasing an existing business/assets; it's quicker, but riskier.
• Greenfield: Establishing entirely new operations; more control, but slower, riskier.

Chapter 8: Forms of International Trade (Exporting, Import. Licensing, Franchising, Joint Ventures, Acquisitions)

• Exporting: Selling goods/services to another country (minimal risk, minimal cost).

• Importing: Buying goods/services from another country.

• Licensing: Granting a license to another firm to use intellectual property, technology or trademarks (low-cost entry).

• Franchising: Granting a franchise to an independent firm with rights to use a company's brand (minimal entry cost).

• Joint Venture (JV): A partnership between companies to pursue a common goal.

• Acquisition: Taking over an existing company/operations in another country (provides immediate market share and established relationships; but can be risky).

• New Subsidiary: Establishing a brand, new company or operation in a foreign country (Provides complete control to the MNC; high startup cost).