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Unit 13: Basics of International Accounting and Financial Management

The intersection is the result of the process of internationalization. Many American and European notes
authors see international marketing as a simple extension of exporting, whereby the marketing mix
4P’s is simply adapted in some way to take into account differences in consumers and segments.
It then follows that global marketing takes a more standardized approach to world markets and
focuses upon sameness, in other words the similarities in consumers and segments.

13.1 Basics of international financial management

Here we discuss first the functions of the generic capital market followed by the limitations of a
domestic capital markets and discuss the benefits of using global capital markets.
A capital market brings together those who want to invest money and those who want to borrow
money.

figure 13.1: the main Players in a Generic capital market

Investors: Market Makers: Borrowers:
Companies Commercial Bankers Individuals
Individuals Investment Bankers Companies
Institutions Governments

Those who want to invest money include corporations with surplus cash, individuals, and
non-bank financial institutions (e.g. pension funds, insurance companies). Those who want to
borrow money include individuals, companies and governments. Between these two groups are
the market makers. Market makers are the financial service companies that connect investors and
borrowers, either directly or indirectly. They include commercial banks (e.g. Citibank, US Bank
Corp.) and investment banks (e.g. Merrill Lynch, Goldman Sachs).

Commercial banks perform an indirect connection function. They take cash deposits from
corporations and individuals and pay them a rate of interest, making a profit from the difference
in interest rates (commonly referred to as interest spread). Investment banks perform a direct
connection function. They bring investors and borrowers together and charge commissions for
doing so.

Capital market loans to corporations are either equity loans or debt loans. An equity loan is made
when a corporation sells stock to investors. The money the corporation receives in return for its
stock can be used to purchase plants and equipment, fund R&D projects, pay wages, and so on.
A share of stock gives its holder a claim to a firm’s profit stream. The amount of the dividends
is not fixed in advance. Rather it is determined by management based on how much profit the
corporation is making. Investors purchase stock both for their dividend yield and in anticipation
of gains in the price of the stock, which in theory reflects future dividend yields. Stock prices
increase when a corporation is projected to have greater earnings in the future, which increases
the probability that it will raise future dividend payments.
A debt loan requires the corporation to repay a predetermined portion of the loan (the sum of
the principal plus the specified interest) at regular intervals regardless of how much profit it is
making. Management has no discretion as to the amount it will pay investors. Debt loans include
cash loans from banks and funds raised from the sale of corporate bonds to investors. When an
investor purchases a corporate bond, he purchases the right to receive specified fixed stream of
income from the corporation for a specified number of years (i.e. until the bond maturity date).

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