Financing Multinational Organizations

Raising of funds on favourable terms is an important aspect of financial management.  This also holds good for procurement of funds in the international market, in any currency.  Funds for a multinational may be raised either through internal or external sources.  Internal funds comprise share capital, loans from patent company, and retained earnings.  Funds from external sources can be raised from:

Commercial Banks – Commercial Banks all over the world provide foreign currency loans for international operations as they do for domestic operations.  These banks also provided facility to overdraw, over and above the loan amount.

Discounting of Trade Bills – This method is used as a short-term financing method.  It is widely used in Europe and Asia to finance both domestic and international trade.  In this case companies holding bills of exchange, gets the bills encashed before their scheduled maturity through the bank.  The bills are encashed at a discount.

Euro-currency Market – When the currency is deposited outside the country of origin.  It is termed as Eurocurrency.  For example, US $ deposited outside United States is termed as Euro-dollar.  These deposits are largely outside the control of national banking activities.  Thus, euro-currency market is another attractive source for borrowing foreign currency.

Euro-bond Markets – Like euro-currency market, euro-bond market has emerged as another significant source of capital.  Euro-bonds are also primarily sold in countries other than that of the country in whose currency the bond is denominated.  Thus, bonds denominated in yen but sold in US, Britain etc., are known as euro-bonds.

Development Banks – Many countries have development banks which offer long and medium-term loans.  Many agencies at the national level offer incentives for firms to invest within their country or to finance exports. 

International Agencies – Many international agencies have come into being for financing specific category of projects.  For example, international finance corporation and World Bank assist developing countries by financing projects in private and public sectors.  Regional Development Banks provide finance for priority projects for economic development of the countries of their finance for priority projects for economic development of the countries of their regions.