Week 12 - Financing Business Operations

Financing Business Operations

Generally, organizations obtain

financial resources through one of three

sources:

• Borrowing (debt)

• Issuing equity (stock ownership)

• Internal funding

Financing Business Operations: Borrowing

Option of borrowing using bank loans by a global business

• Borrow directly from a local bank

• Borrow from a home country bank

• Borrow using back-to-back loans

Back-to-back loans: Loan in which a parent company deposits money with a host country’s bank in the home country, which then lends the money to the parent company’s subsidiary located in the host country.

Financing Business Operations: Issuing Equity

American Depository Receipt (ADR)

• Certificate that trades in the United States and that represents a specific number of shares in a non–U S company

Venture capital

• Financing from investors who take part ownership in a business that is expected to experience rapid growth

Financing Business Operations: Internal Funding

Internal funding

• Internal equity, debt, fees

• Revenue from operations

• Transfer prices

  • Price charged for a good or service transferred among a company and its subsidiaries

  • Need to be arm’s length prices

Financing Business Operations: Internal Sources of Capital for International Companies