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    Finance: Sample Questions

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    You are the treasury department for a multinational firm and have been asked to raise $20 million. Discuss what options are available to raise this money and decide what financial instruments you will use. Which financial instruments will you use to raise the $20 million? What financial intermediaries will you use? What regulatory agencies will you need approvals from to raise the funds? What are the pros and cons of each choice? Have you considered the exchange rate risks?


    What is meant by foreign exchange risk? What specific problems does foreign exchange present in an organization? How could an organization needing Euros in six months protect itself from currency fluctuations?


    What is globalization? Why has globalization become such an important issue over the last ten years? How will globalization change financial management in the years ahead?

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    Solution Preview

    The response addresses the queries posted in 2743 words with references.

    //Prior to giving the answer of this question, we have to understand the situation given in the question and its requirements. Firstly, we have to describe the entire situation and analyze various aspects behind this, for example: //


    The analysis of the internal markets of the U.S. Multinational firms show that the internal market operations signify a critical aspect of the responses of the firm to the costly external finance, capital controls and fluctuations in currency. The nature of internal markets has changed and it has influenced the way how firms operate and finance themselves all over the world. The internal markets are used by the firms opportunistically, chiefly in response to the distortions in the local markets. (Desai, Fritz Foley & Hines Jr., 2007)

    All over the world, the capital market conditions differ noticeably. While, in some countries, there are such kinds of legal protections and supportive regulations that produce liquid capital markets; an example of this is the US, others have such legal structures or regulatory policies that create very shallow capital markets. Because of these differences, the capital structure choices made by a firm are affected. (Desai, Fritz Foley & Hines Jr., 2007)

    //As per the need of the assignment, we will discuss various options to raise the funds. The explanation given by me will direct you to evaluate the suitable wasy to raise the fund in the given situation. //

    There are various options available for raising funds. It includes the shares, bonds and debentures, ADR's, GDR's, Euro bonds, Euro currency loans and foreign bonds. There are several advantages of issuing shares. The company has to pay dividend to the equity shareholders only if the company earns profits or have enough cash to pay them but the preference shareholders have to be paid a fixed rate of dividend compulsorily, even if the company has no profits; same is the case with bonds and debenture holders. But, when the company earns adequate amount of profits, it pays high dividends to its equity shareholders.

    There are different kinds of preference shares; redeemable and irredeemable, cumulative and non-cumulative. Ordinary shares are a permanent source of capital and the rate of dividend is also not fixed. Ordinary shareholders sink and swim with the company. Equity shareholders have control over the company and the preference shareholders and the debenture holders have only limited voting rights.

    Besides raising funds from the domestic market by issuing equity and preference shares and debentures, a company can also raise funds from the international market. A company can raise funds by issuing Eurobonds and foreign bonds to investors in other countries. Eurobonds are sold outside the country in whose currency they are denominated and are issued directly to investors by the borrowers. Eurobond market is a free market without any regulation and is a self regulated market. Eurobonds are generally issued as bearer bonds. The bearer is the owner of the bond. The bearer Eurobond offers the ease of transfer. Eurobonds may also be issued with the conversion feature. A convertible Eurobond is a bond where the investor has the option to convert his or her bond to equity shares in a given proportion.

    //As per the requirement of the paper, we will talk about the various regulatory agencies. This explanation will guide you to find that which funding technique will be approved by the regulatory agencies. This explanation will also guide you to identify the several advantages and disadvantages of each method. //

    A foreign bond is denominated in the currency of the country where it is issued and is subject to the laws and regulations of that country. In developed markets like US, Europe and Japan, markets for Eurobonds, foreign bonds and domestic bonds operate together. The size of Eurobonds is larger than the foreign bonds. There are straight fixed rate bonds and floating rate bonds. The former one offer a fixed rate of interest on the face value and the principal is repaid at the maturity while the latter one offer a rate of interest that is indexed to a benchmark rate, which is either 3 month or 6 month LIBOR.

    Most international firms can raise funds from the Eurocurrency markets. Eurocurrency is any freely convertible currency ...

    Solution Summary

    2465 words, APA