Intro to business: most important institutions in the money markets; capital financing

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The global financial markets include the market for foreign exchange, the Eurocurrency and related money markets, the international capital markets, notably the Eurobond and global equity markets, the commodity market and last but not least, the markets for forward contracts, options, swaps and other derivatives.

The markets and institutions of international finance have, in recent years, undergone significant changes. To great extent the institutions that dominated global finance in earlier decades--commercial banks and supranational organizations like the International Monetary Fund--have been displaced by disintermediated, private finance. There has been an enormous shift of expertise and market power away from banks and towards corporations. The latter increasingly issue commercial paper, bonds and medium term notes, and manages their financial risks internally. Some have created finance subsidiaries that have become powerful financial service firms in their own right. Banks' functions have broadened accordingly: a few have become more like investment banks, performing underwriting and distribution of securities to investors rather than lending money themselves. Many have developed capabilities in risk management instruments, such as options, swaps and more complex derivatives. All successful market participants must have a far more sophisticated understanding of financial risks, and of the tools to manage them, than was once the case. The asset-liability management task in commercial banks has become more complex as the variety of products, both on and off their balance sheets, proliferates.

The International Monetary Fund, originally designed to resurrect the post-World War II international monetary system, has become a lender to less developed countries in financial distress and no longer performs in the main arena of the international financial circus. National capital markets have gained importance, to some extent at the expense of external markets like the Eurobond market, as barriers are eroded and domestic institutions face the harsh wind of international competition
Capital financing:
Every business starts with an idea. You have a good business idea, an invention or just a vision. But it is a long way from that to a successful realization.

The idea is just the beginning. You will realize soon, that money is the indispensable requirement for the development of an idea to a successful enterprise. Only a very few projects can be realized without additional capital. That's why raising capital is one of the most important prerequisites for your success. Mostly conventional banks drop out because they are not willing to share the risk. They only provide loans if you are able to provide securities. The most practicable solution is investor, who is willing to share your risk and participate from your success.

Therefore all your effort should focus on finding investors and convince them of your project. An entry in the database of Proma-Investment is for sure a convenient and promising method to find contacts to investors.

Now it applies to you to convince the potential investors. Therefore you should try to see your project with their eyes. The earlier you get in contact to the investors the better. In discussions with potential fund providers you will learn what is important for them and what they require. Often investors are willing to help in the planning phase and to bring in their own wishes.

What is important for an investor?
The first thing is the idea and the plan how to realize it. All has to be conclusive and practicable. Possible problems, if there are no solutions for, will deter investors. Your concept has to stand a critical inspection of specialists. As important as the idea and the concept there are the people behind the project. Investors don't put money into ideas, but in the team that realizes the ideas. No matter for what you are looking for money you don't sell your project only, you always sell your personality as well. So you should be able to explain why especially you, your team or your leading personal are able to bring a project to a successful conclusion.

Finally you have to explain the profit prospects. What profit will an investor get out of the capital he brings in and in what period? The calculation of the profit has to be conclusive and realistic.

If you want to establish a company, you must make a decision on the form and extent of the business. Certain entrepreneurial criteria, however, have to be fulfilled. Running a business or any other type of acquisition of income is considered independent when done at one's own risk, tools and media, when offered in public, when the entrepreneur him/herself is responsible for all costs, when he/she has taken care of his/her own social security and has insured him/herself against damage resulting from his/her own actions. You can exercise your business as a sole proprietor, or in the form of a single-member company, limited or unlimited partnership, and limited company or as a cooperative.

Unlimited and limited partnerships, limited companies and cooperatives each have their own specific laws. To receive more detailed information on the types of companies we advise you to familiarize yourself with those laws. What form of business fits best for you, depends on your entrepreneurial purpose and has to be decided individually. In any case you should consult a tax advisor for an individual solution.

Single-member Company

A single-member company is the most natural form of business where an entrepreneur has got unlimited liability.

Unlimited partnership

An unlimited partnership is a small business which is to be run together with someone else. The partners are responsible for the business with their entire property.

Limited partnership

A limited partnership can be established by at least one ordinary and one limited partner. It is typically a family-owned company in which the administrative authority and decision making lies in most cases with one partner, the general partner.

Limited company

Limited companies are divided into public and private companies. It can be set up by one or several persons. The shareholders are not responsible for the operation of the company with their personal property rather to the amount of invested capital only.

Cooperative

A cooperative is a community the number of members and amount of cooperative capital is not predefined. The members of a cooperative are not responsible for the liabilities of a cooperative in person.

Society

A society is always founded to fulfill one or several predefined goals. The primary purpose of a registered society cannot be to practice a business or to gain profit.

There are a huge number of forms of investment. Before concluding an investment contract you should take legal advice. Especially in questions of company law and tax deductions participation agreements can be formed in many ways.

The classical form of investment in a business is to get shares of a company or corporation. The most common method of capital procurement is the emission of shares of a public company.

But there are many other forms of investment than shareholding. The main differences are in liability of the investor. Many possibilities to limit liability, but to preserve entrepreneurial independence is so called mezzanine money. This form of financing is between co-venturing and secured credit.

Other forms of investment are:

Gilt: When the government wishes to borrow money, it issues loan stock, known as gilts. This is a very safe form of investment since the loan is guaranteed by the government. The price of gilts moves up and down to reflect the going interest rate.

Warrants: These are securities, which give the holder the right to subscribe to shares in a company at a given price and at fixed dates.

Option: The right, but not the obligation, to buy or sell securities at a fixed price within a specified period.

Derivative: This is a general term for any financial instrument which gives the option to buy or sell shares at a predetermined price - warrants and options are examples of this.

Traded options: These are similar to options but can be sold on to someone else before the expiry date.
For a start-up a detailed concept in writing, called a business plan is indispensable. The business plan is more than only a description of a project. It is the realization concept, it provides information about the management of a company, contains resources of turnover and expenses, of profits and growth of the business. A good business plan provides all the information an investor needs to decide for or against an investment in the described project. It is clearly structured and provides facts without digression. The business plan contains about 20 to 30 pages, including all attachments.

Structure of a business plan

Executive Summary

Every business plan starts with a summary of maximum two pages. This summary should ...