International Corporate Finance

International corporate finance deals with the various financial activities of international corporations or multinational companies. These activities include working capital management, inventory management, cash management, short term financing, and debtor’s management.
The activities of international corporate finance are discussed as follows:

Inventory Management:
Inventory management is implemented by the company for managing the inventory in order to continue the production without any interruption. For maximizing the cash flow, the company tries to minimize additional expenditures in reordering costs and raw materials.

Cash Management:
Important corporate organizations receive cash management services from banks.

The cash management services can be categorized into the following types:
Account reconciliation services: For keeping a track of the cheques which have been cleared and which have not, the banks try to maintain a list of cleared cheques and uncleared cheques. This method is termed as positive pay.
Advanced web services: International corporate finance companies receive a variety of online information services from a large number of banks.
Armored car services: On behalf of big retail companies, the banks take the responsibility of collecting big amounts of cash.
Automated clearing house: Companies make payments to its employees with the help of this electronic system.
Balance reporting services: Various websites of the banks provide regular information to the company regarding the cash and account balance positions.
Sweep accounts: With the help of sweep accounts, the extra amount in the company’s bank account is transferred to the money market mutual fund for a short time and again transferred back to the bank account the next day.
Zero balance accounting: With the help of this accounting system, every department of a company is allotted a separate account and money collected by all the departments are channelized to the principal bank account.
Short term financing:

      Short term financing purposes are served by bank loans.

Debtors management:

      For attracting the customers, formulation of a suitable credit policy is necessary. The plan should be to keep the cash conversion cycle intact and increase the revenue and cash flow.

Financial risk management:

      Corporate risk management is a distinct feature of financial risk management.

The devices implemented by financial risk management include the following:
Futures: The futures are traded on a futures exchange and the futures contract is a form of standardized contract. It has been planned for buying or selling an underlying commodity on a particular date and time. The seller or buyer participating in the futures contract has to satisfy the contract terms.
Options: The options contract is quite similar to the futures contract, but in case of options, the contract bearer carries the option for exercising the contract. Options can be categorized into two types of contracts- the call option and the put option. The trading of options is done through clearinghouses. The option buyer is supposed to take the long position, and on the other hand, the option seller is supposed to take the short position.
Hedge funds:
Hedge fund is a basic form of investment funds. A performance fee is charged by hedge funds. Hedge funds are not similar to pension funds, mutual funds, or insurance companies. Hedge funds operate in the field of the swaps, futures, and derivative markets.

Investment banking:
Another form of international corporate finance is investment banking. On behalf of the large financial institutions, the investment bank issues and sells securities in the primary market. The capital raising is done by them with the help of equity and debt instruments.

Private equity:
Any type of equity investment the trading of which cannot be done in the public markets is known as private equity.

The private equity investment can be categorized into the following types:
Leveraged buyout: When a financial sponsor holds the majority of a company’s equity with the help of debt, it is known as leveraged buyout.
Growth capital: Growth capital funds are borrowed for a wide variety of corporate needs.
Angel investing: This investment method is sometimes used in place of ownership equity.
Mezzanine capital: This term is broadly used for covering subordinated, unsecured, high yield, and preferred stock.
Venture capital: The venture capital is implemented in case of new and emerging businesses, and it is a form of private equity capital


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Last Updated on : 1st August 2013


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