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Chapter Five: Financing Foreign Operations

Auditing is defined as the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent independent person. This description of auditing includes several key words and phrases. Each of them is discussed in this section briefly.

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56 views

Chapter Five: Financing Foreign Operations

Auditing is defined as the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent independent person. This description of auditing includes several key words and phrases. Each of them is discussed in this section briefly.

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Chapter Five

Financing Foreign Operations

1
I. CORPORATE SOURCES AND USES OF FUNDS

I. CORPORATE SOURCES OF FUNDS


A. 3 General Sources of Funds:
1. Internally-generated cash
2. Short-term external funds
3. Long-term external funds
B. Forms of Securities
1. Equity
2. Debt: the most preferred form
2
CORPORATE SOURCES AND USES OF FUNDS

C. Debt Instruments Used


1. Commercial Bank Loans
2. Bonds
a. Publicly issued
b. Privately issued- unusual in Ethiopia

3
CORPORATE SOURCES AND
USES OF FUNDS
D. Financial Markets v. Financial Intermediaries
1. Securitization
a. Definition:
replacing bank loans with
securities issued in public
markets.

4
CORPORATE SOURCES AND
USES OF FUNDS
b. Reflects reduction in access costs
due to
1.) Technological improvements
2.) Globalization

5
Principal Functions of Financial Centers
-between savers and borrowers
1. To transfer purchasing power
2. To allocate funds

6
NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS

Prerequisites to be a financial center


a. political stability
b. minimal government interventions
c. legal infrastructure
d. financial infrastructure

7
NATIONAL CAPITAL MARKETS
AS INTERNATIONAL CENTERS

Downside of Global Financial Markets


-abrupt shifts in capital flows

8
DEVELOPMENT BANKS

IDEVELOPMENT BANKS

A. General Purpose
founded by governments to help finance very large in-
frastructure projects.

9
DEVELOPMENT BANKS

Types of Development Banks


1. World Bank Group includes
a. International Bank for Reconstruction
and Development
b. International Development Association
c. International Finance Corporation

10
DEVELOPMENT BANKS

B. Types of Development Banks (con’t)


2. Regional Development Banks
finance industry, agricultural, and
infrastructure projects
3. National Development Banks
concentrate on a particular industry or region.

11
PROJECT FINANCE

PROJECT FINANCE
frequently used mechanism to finance large-scale, long-
term capital investments.

12
PROJECT FINANCE

Key Attributes of Project Financing


1. Focus on economically separable projects
2. Lenders have recourse only to assets and cash flows of the project
3. Underlying assets are large and illiquid
4. Projects have a finite life.

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