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International Corporate Finance (ICF)

International Corporate Finance (ICF). Agenda. Friday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 ) am: Structures, Statements, Value, Analysis, Currency pm: Time & Currency Discounting/Trading of Money Saturday – ( Sessions am: 8:30-12:00, am: 1:30-5:00 )

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International Corporate Finance (ICF)

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  1. InternationalCorporate Finance (ICF)

  2. Agenda • Friday – (Sessions am: 8:30-12:00, am: 1:30-5:00) • am: Structures, Statements, Value, Analysis, Currency • pm: Time & Currency Discounting/Trading of Money • Saturday – (Sessions am: 8:30-12:00, am: 1:30-5:00) • am: Workshop on Evaluating Financials. Discussion of the RMB • pm: Internal Operations: Cash Management & Project Evaluation • Sunday – (Sessions am: 8:30-12:00, am: 1:30-5:00) • am: Workshop on Financial Projections and Raising Capital • pm: External Operations: Markets’ instruments and practices • Monday – (Sessions am: 8:30-12:00, am: 1:30-5:00) • am: Understanding the "NEW ECONOMY" • pm: Reviewing important points. Final Exam. On the Internet at:http://cha4mot.com/ICF0411

  3. US Securities Market • A securities market is a place where you buy or sell financial assets such as bonds, stocks, options, or futures. • Examples of securities exchanges: • New York Stock Exchange (NYSE) • American Stock Exchange (AMEX) • Chicago Board of Trade (CBT) • Over the Counter (OTC) market • National Association of Securities Dealers (NASDAQ)

  4. Securities Vocabulary • Money Markets or “cash” • Fixed Income Capital Markets (Bond Markets) • Equity Capital Markets (Stock Markets) • Stock Indexes • Derivative Securities Markets • International markets and • Primary market (IPOs) • Secondary market (subsequent offerings)

  5. Money Market Instruments MMIs are: short term, liquid, low risk, popular

  6. US Treasury Bills • Short-term government debt securities • Sold through auction by the U.S. Treasury • Maturity of one year or less • Discount bonds (no coupons) • Minimum denomination is $10,000 • Tax-exempt at the state and local level

  7. Bonds • Based on who the issuer is. • Treasury Notes and Bonds • Both pay semiannual coupons • Notes are 1-10 years maturity • Bonds are 10-30 years maturity • Federal Agency Debt • Mortgage and student loan agencies • Municipal Bonds • Tax-exempt at the federal, state, and local level • Corporate Bonds • Default risk; credit rating • Mortgage-Backed Securities

  8. Distribution of US Bondholders

  9. Mutual Funds • What is a mutual fund? • An investment company that pools the funds of individual investors and buys securities or other assets on their behalf. • What are the benefits? • Diversification of investments • Lower transaction costs • Book-keeping and reports • Professional Management

  10. Stocks • Common Stocks • Shareholder or Owner of the firm • Residual Claimant • Limited Liability • Preferred Stocks • Fixed Dividends • Cumulative Dividend Provisions • No voting power • Liquidation Preference

  11. NYSE Listing Requirements

  12. NASDAQ Listing Requirements

  13. BID ASK 30.25 30.375 Spread = .125 Spread The spread, or difference between a stock’s BID and ASK price, represents the capital risk a market participant undertakes when buying or selling a stock.

  14. Transaction Orders • Market orders are simply buy and sell orders that are to be executed immediately at current market prices. • Limit orders specify the limits on the prices at which they are willing to buy or sell a stock. • Stop loss orders are similar to limit orders in that they will not be executed unless the stock hits a price limit.

  15. Derivatives • A derivative is a financial asset that is derived from an existing traded asset. • A futures contract is an agreement made today to buy or sell an asset at a future time period at a price specified today. • An option contract is an agreement that gives the owner the right, but not the obligation, to buy or sell an asset at a specified price for a set period of time.

  16. Short Sales • Short sales allow investors to profit from a decline in a security’s price by selling securities they do not own. • How? By borrowing from another investor. • SEC Rules: • Short sale must be identified to the exchange • “Marked to market” each day • Executed only on an uptick

  17. Liquidity • Liquidity is a broad concept that generally denotes the ability to trade large quantities quickly, at low cost, and without moving the price. • Liquidity becomes an issue when the number of shares held is large, trading is halted (for an announcement or irregularity), or the float is very small.

  18. Global Markets

  19. Stock Indexes • Nikkei 225 (Japan) • FTSE (Financial Times of London) • 100 largest stocks on the London Stock Exchange • DAX (Germany) • CAC 40 (France) • Hang Seng Index (HK) • Dow Jones Industrial (US) • Dow Jones Transportation (US) • Standard & Poor 500 (US) • Wilshire 5000 (US)

  20. Emerging Markets

  21. Depository Receipts • American Depository Receipts (ADRs) A security issued in USA to represent shares of a foreign stock • International Depository Receipt (IDR) A negotiable, bank-issued certificate representing ownership of stock securities by an investor outside the country of origin. An IDR is the non-U.S. equivalent of an ADR. • Global Depository Receipt (GDR) A bank issued certificate in more than one country for shares in a foreign company. The shares are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through the bank branches. Similar to and IDR and an ADR.

  22. ADR Purchase Mechanics

  23. Dow – Nikkei 1976-1989

  24. Dow – Nikkei 1989-2002

  25. P/E Ratio vs Δ E/Share

  26. Nikkei 90s vs Dow 30s

  27. Yen vs Dollar for 1942-2001

  28. Stock Market Discussion I • What makes a price? • Perception of future price • usually based on future earnings/share (amount, predictability) • biased by market conditions (bull/bear, liquidity, group, …) • reputation and position of the individual company • absolute price (<$5 vs. >$100) and liquidity • What makes a return? • Selling at a profit (costs, taxes, conversion, …) • Timing (it is no help to say this is the most important factor) • Honesty (it is a crime to sell based on inside information)

  29. Long Term Returns by Class

  30. P/E Ratio 1870-2002

  31. P/E Ratio Distribution

  32. P/E Ratio vs Δ E/Share

  33. Stock Market Discussion II • What makes money (for you, personally)? • Invest in the following companies: • Emerging, important industry (internet, e-commerce, …) • After the industry consolidation to 2 - 4 majors! • Hedge if early, otherwise just go with the leader! • Remain for at least 10 years; ask is 100x valuation possible? • If you had IBM, Xerox, Walmart, … >24% annually • 10 years= 10x, 20 years= 100x, Walmart was 1,000x! • Even if losing money (e.g., AOL), but look at CASH! • Two years ago I picked SOHU (@$1.80); it is still a hold. • SOHU at $100.00 in 2010 is still 20% compounded annually • This obvious formula is a secret because only you make money (brokers don’t, funds don’t, and news doesn’t matter)!

  34. Concluding Remarks • Questions and Answers • Thank you, again. You can find a copy of this lecture (1,100 KB) on the Internet at: http://cha4mot.com/ICF0411

  35. Kondratieff Long Wave

  36. Kondratieff Cycle

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