Finance Mgt

7/29/2019 Finance Mgt

1/31


2/31

INTRODUCTION

As Financial Management two main aspects involves

procurement of funds & effective utilisation of those

funds it becomes crucial to understand the means fromwhich we can procure funds and that is what we call it

as Sources of Funds


3/31

PARAMETERS TO SELECT SOURCE

OF FUNDS

Cost of sources of fund

Tenure

Leverage planned by the company

Financial conditions prevalent in the economy

Risk profile of both company as well as the industry inwhich the company operates.

Each source of fund have some advantages as well as

disadvantages.


4/31

FINANCIAL SOURCES OF BUSINESS CAN BE

CLASSIFIED BY USING DIFFERENT BASIS

1. According to period

long term source

medium term sources

short term sources

2. According to ownership generation

Owners capital or equity capital, retained earnings etc.

Borrowed capital such as debentures, public deposits, loans etc

3. According to source of

Internal sources e.g Retained earnings and depreciation funds.

External sources e.g. debentures, loans etc


5/31

FINANCIAL NEEDS OF A BUSINESS

Business enterprises need funds to meet their different

types of requirements. All the financial needs of a

business may be grouped into the following three

categories:

I. Long term financial needs.

II. Medium term financial needs.III. Short term financial needs.


6/31


7/31

SHORT TERMSOURCE


8/31

CUSTOMER ADVANCE

TRADE CREDIT

DEFERRED INCOME

SHORT TERMCOMMERCIAL BANK

FIXED DEPOSIT FOR LESSTHAN A YEAR


9/31

Accrued Expenses Deferred Income

Goods enters Cash enters


10/31

Comparative Chart

Types of finance Period of repayment PurposeLONG MORE THAN 5 YEARS LAND

BUILDING

MACHINERY

MEDIUM 1-5 YEAR RENOVATION

MODERNIZATION

MOTOR VEHICLES

COMPUTER

HEAVY ADVERTISING

SHORT LESS THAN A YEAR PURCHASE OF RAW

MATERIALS

PAYMENT OF WAGES

RENT, INSURANCETELEPHONE/ELECTRICITY


11/31


12/31

International Finance

INTERNATIONAL SOURCES IS AN EXTERNAL

SOURCE OF PROCUREMENT OF FUNDS IN THE

BUSINESS

SUCH EXTERNAL SOURCES INCLUDES:

COMMERCIAL BANKS

DEVELOPMENT BANKS

DISCOUNTING OF TRADE BILLS

INTERNATIONAL AGENCIES

INTERNATIONAL CAPITAL MARKETS


13/31

ExternalCommercialBorrowing

(ECB)EURO

BONDS

FOREIGNBONDS

FULLYHEDGEDBONDS

MEDIUMTERM

NOTES

FLOATINGRATE

NOTES

EURO

COMMERCIAL

PAPERS

FOREIGN

CURENCY

OPTION

FOREIGN

CURENCY

FUTURE

FINANCIAL

INSTRUMENTS


14/31

EXTERNAL COMMERCIAL

BORROWINGS (ECB)

ECBs could be raised through:

International banks

Multilateral financial institutions:

IFC, ADB Export Credit Agencies

Suppliers of equipments

Foreign collaborators and

Foreign equity holders

ECB can be accessed under 2 routes:

Automatic route and Approval route


15/31

These are debt

instruments which

are not denominated

in the currency of the

country in which

they are issued.

E.g.: yen note floated in

Germany

FOREIGN

BONDS

EUROBONDS

FULLY HEDGEDBONDS

These are debtinstruments issuedby foreign govt.and are exposed to

default risk

E.g.: a British firmplacing dollardenominatedbonds in USA

They eliminate risk of

currency fluctuations

by selling forward

markets the entirestream of interest

payment


16/31

Medium Term Notes

Floating Rate Notes

Euro Commercial Papers (ECP)

Foreign Currency Option

Foreign Currency Futures


17/31

American depository receipts

An American depositary receipt (ADR) is a negotiable security

that represents securities of a non-US company that trade in the

US financial markets. Securities of a foreign company that are

represented by an ADR are called American depositaryshares (ADSs).

Shares of many non-US companies trade on US stock exchanges

through ADRs. ADRs are denominated and pay dividends in USdollars and may be traded like regular shares of stock

The first ADR was introduced by J.P. Morgan in 1927 for the

British retailer Selfridges.


18/31

Global Depository Receipts

A global depository receipt or global depositary receipt (GDR) is acertificate issued by a depository bank, which purchases shares offoreign companies and deposits it on the account. GDRs representownership of an underlying number of shares.

Global depository receipts facilitate trade of shares, and arecommonly used to invest in companies from developing or emergingmarkets.

Prices of global depositary receipt are often close to values of relatedshares, but they are traded and settled independently of theunderlying share.

Several international banks issue GDRs, such as JPMorgan

Chase, Citigroup, Deutsche Bank, Bank of New York.


19/31

Indian Depository Receipts

An Indian Depository Receipt is an instrument denominated in Indian Rupees in the form of a

depository receipt created by a Domestic Depository (custodian of securities registered with the

(Securities and Exchange Board of India) against the underlying equity of issuing company to enable

foreign companies to raise funds from the Indian securities Markets.

The foreign company IDRs will deposit shares to an Indian depository. The depository would issue

receipts to investors in India against these shares. The benefit of the underlying shares (like bonus,

dividends etc) would accrue to the depository receipt holders in India.

The Ministry of Corporate Affairs of the Government of India, in exercise of powers available with it

under section 642 read with section 605A had prescribed the Companies (Issue of IndianDepository Receipts) Rules, 2004 (IDR Rules) vide notification number GSR 131(E) dated February

23, 2004.

Standard Chartered PLC became the first global company to file for an issue of Indian depository

receipts in India.


20/31

Other Types of International Issues

Foreign euro bond

Euro convertible bond

Euro bond

Euro convertible zero bond

Euro bond with equity warrant


21/31

Commercial Paper

A commercial paper is an unsecured

money market instrument issued in the

form of a promissory note.


22/31

Bank Advances

Banks receive deposits from public for differentperiods at varying rates of interest , these funds are

invested and lent in such a manner that when required,

they may be called back.


23/31

Facilities provided by bank

Short term loans

Overdraft

Clean overdraftsCash credits

Advances against goods

Bills purchased/discounted

Advance against documents of title to goods


24/31

Financing of export trade bybanks


25/31

The advances lend by commercial

banks for export financing

Pre-shipment finance

Shipment finance

Post-shipment finance


26/31

The companies can borrow funds fora short period say 6 months from

other companies which have surplus

liquidity.

The rate of interest on intercorporate deposits varies depending

upon the amount involved and the

time period.

Inter-corporate deposits


27/31

Certificate of Deposit

The certificate of deposit is a document of title similar to a

time deposit receipt issued by a bank except that there is noprescribed interest rate on such fund.


28/31

Public Deposits

Public deposits are unsecured loans, they

should not be used for acquiring fixed

assets since they are to be repaid within a

period of 3 years.

These are mainly used to finance working

capital requirements.


29/31

Other Sources of Finance

Seed CapitalAssistance

InternalCash

Accruals

UnsecuredLoans

DeferredPayment

Guarantee

CapitalIncentives


30/31

Deep Discount bonds

Secured Premium Notes

Zero Interest Fully Convertible Debentures

Zero Coupon Bonds

Double Option Bonds

Option Bonds

Inflation Bonds

Floating Rate Bonds

New Instruments


31/31

Date post:	03-Apr-2018
Category:	Documents
Upload:	yuvaraj-rao
View:	218 times
Download:	0 times

Finance Mgt

Documents