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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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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 ...

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Similar Posting

Financial questions relating to Business Organization, Shareholders' wealth, Cash flow statement, financial ratios, time value of money, CAPM, Bonds, payback, NPV, IRR, IOS and MCC schedule, WACC, Leverage, EBIT-EPS approach, Cash Conversion cycle.

1) Explain the three principal forms of business organization. Outline their respective advantages and disadvantages. How do taxes, risk, scale, and ownership liquidity affect the selection of one of these three methods?

2) Compare the shareholder-wealth-maximization model with the corporate-wealth- maximization model. What is the proxy for shareholder wealth? How does the role of the shareholder conflict with that of other stakeholder? Who are some of the stakeholder and give examples of potential conflicts. Additionally, what is meant by the agency problem, why does it arise, and what may be done to address it?

3) Discuss the three components of a cash flow statement. What is another name for the statement of cash flows and why is the cash flow statement important? How is the statement of cash flows similar or different from a cash budget?

4) Outline the five classes of financial ratios (you do not need to give the formulas). What are the advantages and disadvantage to using ratio analysis? What do you need to be mindful of when doing ratio analysis? What is the DuPont ratio, what are its components, and why is it important?

5) Time value of money

a) What is the difference between compounding and discounting?

b) What are the five variables in a time value calculation?

c) What is the difference between an annuity and a mixed cash flow?

d) What is the difference between an ordinary annuity and an annuity due? Which has a greater future value and why?

e) Give examples where you may use time value in your own life.

6) How do you measure the return and total risk for a single asset? What is the difference between portfolio risk and stand alone risk? What is the difference between systematic risk and unique risk? What is the tradeoff between risk and return? How does risk change (absolutely and incrementally) as you randomly add assets to a portfolio? What effect does
the risk of a single asset and the correlation between assets in a portfolio have on portfolio risk?

7) What is the capital asset pricing model (CAPM); what does it show; why is it important: and how do you use it? What are some of the practical and theoretical limitations of the CAPM?

8) Describe and compare the zero-growth, constant-growth, and multi-stage dividend growth models for equity valuation. What assumptions must you make? How do changes in the growth rate and the cost of capital affect valuation?

11) Bonds

a) Using a bond price yield curve, discuss in detail the relationship between bond prices and the yield to maturity.

b) How do maturity and the size of the coupon affect the shape of the bond price yield curve? Explain. What does the shape of the bond price yield curve mean for interest rate risk?

c) Assuming no change in interest rates, what happens to the price of a bond as it approaches maturity? Show this graphically for a par, premium, and discount bond.

d) If you expect interest rates to rise (decline), what kind of bond should you buy? Why?

12) Compare and contrast the payback, NPV and IRR techniques for capital budgeting. What are their respective advantages and disadvantages of each? Will they ever give you different recommendations? If so, which would you prefer and why?

13) Draw and label an NPV profile? What does the profile show? How can you use it to assess an individual project or multiple projects? What factor(s) explains the shape of the NPV profile? What other curve does it resemble?

14) Explain the IOS and MCC schedules. What are they; how are they computed; and how can you use them? What is a break point? Use a graph to illustrate your work. Carefully label this graph.

15) Describe and discuss the following terms. Be sure to include where/why they are important and/or how you can use them.

a) Risk adjusted return

b) Annualized net present value

c) Scenario analysis

d) Sensitivity analysis

e) Capital rationing

16) Discuss the weighted average cost of capital: what is it, how do you compute it, why it is important, and what it does it mean for new projects. Is the weighted average cost of capital constant over time? Why or why not?

What are the different ways to determine the weights? Why do some firms use a hurdle rate that is higher than the WACC? What are the implications of using a higher hurdle rate to shareholder wealth maximization?

17) Define operating, financial and total leverage as well as the degree of operating, financial, and total leverage. How do you use them and why are they important? Is the degree of operating, financial, and total leverage constant? Explain why or why not. How do operating and financial leverage affect a company's target capital structure and earnings per share? How and why do businesses adjust for the tradeoff between financial and operating

18) Conceptually and graphically discuss how you would determine the optimal capital structure for a specific firm. Include a discussion of the EBIT-EPS approach.

19) Describe the cash conversion cycle, its funding requirements, and the strategies for managing it.

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