International Finance: Flow of Funds and Foreign Currency Borrowing

Running head: INTERNATIONAL FINANCE
INTERNATIONAL FINANCE
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INTERNATIONAL FINANCE
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INTERNATIONAL FINANCE
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Table of Contents
Chapter 3 BHP Billiton................................................................................................................3
Chapter 5 Bruin Aircraft, Pty Ltd................................................................................................4
Chapter 6 Beacon Lighting..........................................................................................................6
Chapter 7 UniSuper......................................................................................................................7
References....................................................................................................................................9

INTERNATIONAL FINANCE
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Chapter 3 BHP Billiton
Flow of funds is the movement of funds to and from various sectors of an economy in a given
period of time (Errico et al., 2014). In a globalised world, international flow of funds has
become more significant than ever due to the dynamic nature of business (Cavusgil et al., 2014).
Commercial banks have become important sources of facilitating flow of funds across continents
(Cohen, 2018). They undertake a variety of options which benefits both their business and the
client. Some of them are foreign branch banking, financing trade, foreign exchange services and
corporate financing (Buch & Goldberg, 2015). The markets where transactions of these kind
happen are the spot market, international money market and bond markets.
With respect to spot market, the bank can utilise instruments called spots which are used to
convert currencies of one country to currency of another (Malloy, 2013). They can either be done
on a fixed rate basis or a floating rate basis. Any excess of funds obtained from a subsidiary are
remitted to the parent company (Butler, 2016). Eurocurrency market is a popular money market
which is used to fund the growth of subsidiaries when they are in need of funds. MNCs usually
borrow from these markets from the banks when they are in need of funds on a short term basis.
In this case, Citibank serves as the creditor to BHP Billiton. With regards to the bond market,
bonds are issued in markets like Eurobond market and other stock exchanges where funds are
obtained from investors and are used in the financing of the business operations of the
subsidiary. Funds generated from the operations are used to pay the interest on these bonds
(Miyajima & Mohanty, 2015). In this case, the bank acts as a facilitator of the flow of funds.
In case of foreign branch banking, large banks like Citigroup facilitate flow of funds by acting as
affiliates to smaller banks that do not have presence in foreign countries. They help BHP Billiton
by providing a mechanism to its subsidiaries for obtaining international loans. They merely act
as a facilitator in this case. Trade finance is an aspect in which banks facilitate transactions
between individual customers and companies existing in a foreign country (Casey, O’Toole,
2014). This is usually done by issuing Letter of Credit (LOCs) which are a source of guarantee to
the company that the amount has been deposited by the customer. LOCs play an important role
in a company obtaining loans from manufacturers and is helpful in the flow of funds with
minimum risk. In this situation, Citigroup acts as a creditor on behalf of BHP Billiton as it is