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International Finance Assignment : Diageo plc

   

Added on  2021-02-21

14 Pages4810 Words42 Views
FinanceCalculus and AnalysisEconomicsPolitical Science
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GLOBAL FINANCE
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Table of ContentsINTRODUCTION...........................................................................................................................3PART A...........................................................................................................................................3PART B...........................................................................................................................................8Use of derivatives to hedge foreign exchange risk......................................................................8Advantages and disadvantages of forwards, future, options and swap to hedge foreignexchange risk.............................................................................................................................10CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................132
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INTRODUCTIONFinancial management and control in order to maximise the scale of organisation at global levelis recognised as global finance (Turner, 2017). Business entities whether small or large keeptrying to explore their financial operations in order to expand the business at domestic andinternational level. This report focuses on such aspects which are associated with global financemanagement to explore and enhance the business scale at international level. The report isdivided in two parts as Part A and Part B. A financial plan is critically analysed with benefits anddisadvantages of main source of funds in the part A. Equity and debts markets are focused areasin part A. Risk factor while funding and international transactions are covered in part B. Use ofderivatives considering the future, forwards, options and swap to hedge foreign exchange risk arecategorised in the B part. Pros and cons of various derivatives in managing FX risk andmitigating FX risk are also covered in this report. Diageo plc a Britishmultinationalalcoholicbeveragescompany is taken to understand the concept of global finance. PART ASeveral countries are attempting to forego systematically unorthodox fiscal policies set up topromote stabilization, while some are widening the scope and scale. The main elements ofinternational finance are the large international organizations, like the Global Investment Fund aswell as the International Monetary Fund and various national institutions and governmentagencies, such as central banks, finance departments, and those business companies that operateinternationally (Drezner, 2015). A failure of governments to coordinate priorities and reachinternational agreement on issues such as financial regulation also perpetrated the risk of a globalfinancial structure. Whereas the global financial system is heading towards increased flexibility,specific domestic and international requirementsmust be addressed by governments. Emergingeconomy officials address a precision task as they must cautiously enforce soundmacroeconomic strategies amid unprecedented market volatility while forcing shareholders towithdraw their resources to weaker markets.Diageo plc is a listed organisation in UK. The company is currently trading at £10 per shareand 10 million shares in issue. The total market value of the issued share capital of the companyis £100 million. CFOKathryn Mikells is requested to frame a report to the board of director’ssubject to raising an additional funding of £50 million for better growth and sustainability for3
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international projects. Before understanding the requirements of additional funding andappropriate funding options. Source of fundingOrganisations needs vast amount of financial needs and sometimes the internal fundsremain insufficient to fulfil the requirements of business. Appropriation of financial sources atrequired time of span helps business to grow not only at national but also at international leveltoo. Sometimes, companies need to collect funding or equity financing, grow their companiesinto foreign markets or places, invest in R&D, or ward off competitors. although businesses tendto use the proceeds of existing business activities to finance these ventures, it is always moredesirable to try outsourced creditors or shareholders. For all of the discrepancies between thethousands of firms in the world throughout different industries, only a few streams of funds areaccessible to all companies. Various type of funding alternatives is defined as follows:Equity fundsThis is of the alternative of source of funding for fulfilling the capital needs of business.Equity funds are raised by issuing share certificate to shareholders and investors. An offer ofpurchasing of equity shares is given to buyers in consideration of cash (Lall, 2015). The equityinvestment remains certified by publishing shares of company in general public. It is issued inproportionate of amount investment by the investor in business. Equity holders get dividends ontheir equity holdings. This is one of the way to generate the fund with in operations. However,the dynamics of equity funds states the ownership of business in the form of holding the equities.Advantages: The main benefit of equity funding is less liability to repay the payments ofequity holders. Significantly, the business generates the effective and aspects of spreading thebusiness with more than one channels. If the organisation is not being able to pay theirconsideration back than it may issue right shares that prevent the risk of low liquidity. There isno extra payment is required to made to equity holders like bonds and debentures. In lossconditions organisation is not require to pay dividend and profits. Disadvantages: Main drawback of equity financing is distribution of ownership andcontrol of business in stakeholders. Profit for organisation also get decreased Bank loansThis is one of the common alternative of source of finding for business development andgrowth. The loans remain divided in two sections as short term loans and long term loans. If the4
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