Global Finance: capital sources, risk factors, capital structure, opportunities
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a. What are three primary capital sources available for international investments? What are the requirements for each one? What are the pros and cons for each option?
b. What are some examples of global risk factors? What risk factors are most prevalent in today's market? How can one modify their investment strategies to account for these risks?
c. Discuss what changes you think would occur to a company's finance policy and capital structure if the firm was forced to consider re-organization and bankruptcy strategies.
d. Assume that a company will be investing in the global market. What international investment and financing opportunities should they consider, and why? Also, discuss foreign exchange risk and give an example that analyzes how foreign exchange rates could cause a loss to the firm.
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The solution describes the following aspects of global finance: capital sources, risk factors, capital structure, opportunities.
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a. What are three primary capital sources available for international investments? What are the requirements for each one? What are the pros and cons for each option?
The major capital sources include:
1) Loans and advances from financial institutions: The major advantage of this option is that the company does not need to sell equity to raise capital. The disadvantage of this mode of financing is that company needs to make regular interest payment and principal amount at the end of the stipulated period, even if the company is not making any profit. The key requirement of raising loans via financial institutions is good credit history and financial history. Many a times, the financial institution will require a security in the form of land, building, etc. for extending the loan.
2) Another major source includes equity investments from venture capital funds, private equity funds or high net worth individuals. This source of financing is attractive in the sense that it helps in raising equity capital and thus, there is no burden of interest payment or principal repayment. However, the promoter does dilute its stake or shareholding ...
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- BCom, SGTB Khalsa College, University of Delhi
- MBA, Rochester Institute of Technology
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