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National Capital Market
Citation preview
National Capital Marketand
International Financing
DipowirawanDwi Pambudi S.
Rozeru Mario
CORPORATE SOURCES AND USES OF FUNDS
• Secara umum pendanaan perusahaan bersumber dari :
Internally-generated cash
Short-term external funds
Long-term external funds
Forms of Securities
- Equity
- Debt
Securities
CORPORATE SOURCES AND USES OF FUNDS
Debt Instruments Used
1. Commercial Bank Loans
2. Bonds
a. Publicly issued
b. Privately issued
CORPORATE SOURCES AND USES OF FUNDS
Financial Markets V.S. Financial IntermediariesSecuritizationReplacing bank loans with securities issued in public
markets. Reflects reduction in access costs due to- Technological improvements- Globalization
CORPORATE SOURCES AND USES OF FUNDS
Financial Systems and Corporate Governance
Terdapat perbedaan tata kelola perusahaan, secara umum tata kelola perusahaan di dunia dibedakan menjadi :
1. Anglo-Saxon (AS) Model
2. Continental European and Japanese (CEJ)
Jepang mengenal Keiretsu
SONY
SUPPLIER NO.1
BANKNO. 1
TRANSPORTCO
BANKNO. 2
SUPPLIERNO.2
CORPORATE SOURCES AND USES OF FUNDS
• Globalization of Financial Markets
Globalization of Financial Markets
Perkembangan teknologi dan komunikasi
Penurunan cost untuk mengakses financial market
Deregulasi Keuangan
Penghilangan perbedaan domestic financial market
dengan financial market asing
CORPORATE SOURCES AND USES OF FUNDS
• Globalization of Financial Marketshas led to- Global center competition:
London v. New York v. Tokyo- Regulatory arbitrage
NATIONAL CAPITAL MARKET AS INTERNATIONAL FINANCIAL MARKET
Principal Functions of Financial Centers- To transfer purchasing power- To allocate funds
Consequences of well-functioning financial market:- More and better projects get financed- Managers are compelled to run companies- The rate of innovation is higher- Individuals are able to select their preferred time pattern
of consumption.
NATIONAL CAPITAL MARKET AS INTERNATIONAL FINANCIAL MARKET
International Financial Market- Most Important : London, Tokyo, New York- Others : Singapore, Hong Kong, Luxembourg,
Switzerland- Requirement to be a global financial center :
- Political stability- Minimal government interventions- Legal infrastructure- Financial infrastructure
NATIONAL CAPITAL MARKET AS INTERNATIONAL FINANCIAL MARKET
Foreign Access to Domestic MarketThe Foreign Bond Market
a. Extension of domestic market
b. Issues floated by foreign companies or governments
Examples:
Yankee bonds, samurai bonds
Three Major Types of Foreign Bonds- Fixed rate- Floating rate - Equity related (Convertible bonds & Equity Warrants)
NATIONAL CAPITAL MARKET AS INTERNATIONAL FINANCIAL MARKET
Foreign Access to Domestic MarketThe Foreign Bank Market
a. Extension of domestic markets
b. Important funding source: Japanese banks for U.S. firms
The Foreign Equity MarketCross listing internationally can- Diversify risk- Increase potential demand- Build base of global owners
DEVELOPMENT BANKS
General PurposeFounded by governments to help finance very large
infrastructure projects
Types of Development Banks
World Bank Group includes
a. International Bank for Reconstruction and Development
b. International Development Association
c. International Finance Corporation
Regional Development Banks
Finance industry, agricultural, and infrastructure projects
National Development Banks
Concentrate on a particular industry or region.
FUNCTION OF EUROMARKET
DipowirawanDwi Pambudi S.
Rozeru Mario
The Eurocurrency Market
Eurocurrency : Dollar or other freely convertible currency deposited in a bank outside its origin country
Composed of eurobanks who accept/maintain deposits of foreign currency
Dominant currency: US$
The Eurocurrency Market
Growth of Eurodollar Market
Caused by restrictive US government policies, especially- Reserve requirements on deposits- Special charges and taxes- Required concessionary loan rates- Interest rate ceilings- Rules which restrict bank competition.
Eurodollar Creation involves1. A chain of deposits2. Changing control/usage of deposit
The Eurocurrency Market
Eurocurrency Loans- Use London Interbank Offer Rate: LIBOR as basic rate
- Six month rollovers
- Risk indicator: size of margin between cost and rate charged.
Multicurrency Clauses- Clause gives borrower option to switch currency of loan at
rollover- Reduces exchange rate risk
The Eurocurrency Market
Relationship Between Domestic and Eurocurrency Money Market
-Closely linked rates by arbitrage-Euro rates: tend to lower lending, higher deposit
EUROBONDS
Definition : bonds sold outside the country of currency denomination
-A financial instrument which gives 2 parties the right to exchange streams of income over time-Recent Substantial Market Growth due to use of swaps
EUROBONDSLinks to Domestic Bond Markets:
Arbitrage has eliminated interest rate differential
Placement
Underwritten by syndicates of banksCurrency Denomination
Most often US$ (75%)Retirement
Using sinking fund usually. some carry call provisionsRatings
According to relative risk; Rating Agencies : Moody’s and Standard & Poor
Rationale For Market ExistenceEurobonds avoid government regulation
EUROBONDS
Eurobond vs. Eurocurrency LoansFive Differences- Eurocurrency loans use variable rates- Loans have shorter maturities- Bonds have greater volume- Loans have greater flexibility- Loans obtained faster
NOTE ISSUANCE FACILITIES AND EURONOTES
Note Issuance Facility (NIF)- Low-cost substitute for loan- Allows borrowers to issue own notes- Placed/distributed by banks
NIFs vs. Eurobonds
Differences:- Notes draw down credit as needed- Notes let owners determine timing- Notes must be held to maturity
EURO-COMMERCIAL PAPER
Euronotes and Euro-Commercial Paper
Euronotes unsecured short-term debt securities denominated in US$ and issued by corporations and governments.
Euro-commercial paper(CP)
Euronotes not bank underwritten
EURO-COMMERCIAL PAPER
U.S. vs. Euro-CPs- Average maturity longer (2x)
for Euro-CPs- Secondary market for Euro; not U.S. CPs.- Smaller fraction of Euro use credit rating
services to rate.