CH14 - CHAPTER 14 FINANCING FOREIGN INVESTMENT CHAPTER...

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CHAPTER 14 FINANCING FOREIGN INVESTMENT CHAPTER OUTLINE I. Internal Sources of Funds a) Funds from the parent (1) Equity contributions (2) Direct loans (3) Parent guarantees b) Funds provided by operations c) Loans from sister subsidiaries II. External Sources of Funds a) Commercial banks (1) Overdrafts (2) Unsecured short-term loans (3) Bridge loans (4) Currency swaps (5) Link financing b) Interest rates on bank loans (1) Compensating balance (2) Currency movement and interest rates c) Edge Act and Agreement corporations (1) Types of activities c) International banking facilities d) Strategic alliances (1) Joint ventures (2) Motives for strategic alliances e) Project finance (1) Turkey's BOT projects III. Development Banks a) World Bank Group (1) International Bank for Reconstruction and Development (IBRD) (2) International Finance Corporation (IFC) (3) International Development Association (IDA) b) Regional development banks (1) Inter-American Development Bank (IDB) (2) European Bank for Reconstruction and Development (EBRD) (3) European Investment Bank (EIB) (4) Asian Development Bank (ADB) (5) African Development Bank (AfDB) c) National development banks (1) Export-Import (Exim) Bank (2) Agency for International Development (AID) (3) Overseas Private Investment Corporation (OPIC) 117
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IV. Summary 118
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CHAPTER OBJECTIVE Chapter 14 considers various sources of funds for overseas projects and the decision variables that affect the selection of particular sources. Three major sources of funds for foreign investment are: internal sources of funds, external sources of funds, and sources of funds from development banks. KEY TERMS AND CONCEPTS Internal fund flows are retained earnings and depreciation. Overdraft is a line of credit which permits the customer to write checks beyond deposits. Bridge loans are short-term bank loans used while a borrower obtains a long-term fixed rate loans from capital markets. Currency swaps are agreements to exchange one currency with another for a specified period after which the two currencies are re-exchanged. Link financing is an agreement that banks in strong-currency countries help subsidiaries in weak-currency countries obtain loans by guaranteeing repayment on the loans. Compensating balances are those that borrowers are required by their bank to keep in their account. Edge Act corporations are domestic subsidiaries of US banking organization chartered by the Federal Reserve Board and all owed to engage in offshore banking operations. Agreement corporations are edge equivalents chartered by individual states of the United States. International banking facilities (IBFs) are vehicles that enable bank offices in the United States to accept time deposits in either dollars or foreign currency from foreign customers, free of reserve requirements and of other limitations. Strategic alliance
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This note was uploaded on 03/22/2009 for the course MANAGEMENT 5689-9856 taught by Professor Nialamnu during the Fall '08 term at Indiana State University .

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CH14 - CHAPTER 14 FINANCING FOREIGN INVESTMENT CHAPTER...

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