(Doc) International Finance Assignment Free

Running head: GLOBAL FINANCE
Global Finance
Name of the Student
Name of the University
Author’s Note

GLOBAL FINANCE1
Table of Contents
Introduction................................................................................................................................2
Part 1: Review of Main Funding Options..................................................................................2
Part 2: Critical Discussion and Comparison on the Use of Derivatives....................................5
Forward contracts...................................................................................................................5
Future contracts......................................................................................................................6
Options contracts....................................................................................................................7
Swap contracts.......................................................................................................................8
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
Various funding options are there which the business organizations can be utilize
while raising large funds in the global financial markets. Companies need to select these
funding options by considering all the required aspects. In the global financial markets,
foreign exchange (FX) risk is a major risk for the companies and large use of derivatives can
be seen in such conditions to mitigate the FX risk. First part of the report reviews the main
funding options for raising GBP 50 million in the Global Financial Markets. Second part
discusses about different derivatives for the mitigation of FX risk.
Part 1: Review of Main Funding Options
Global financial market refers to a particular market where financial securities and
derivatives are traded at low transaction costs (Valdez and Molyneux 2015). In this market,
the presence of certain funding sources can be seen that a company can utilize for raising
GBP 50 million. The main funding sources are incorporation, debenture, conventional loans,
issue of equity in exchange of cash, debt product selling and raising fund from private
sources. These key funding sources are reviewed in details in below.
Equity Shares – This can be defined as the percentage of a company’s money that is raised
in exchange for a share of ownership in the company. It is the process to offer shares either to
public or to selected groups of feasible investors; and this is considered as the quickest way
of raising fund in the global financial market. The aspect that the firm has taken the decision
to ‘going global’ will make the potential foreign investors more attractive towards the firm.
Therefore, a company can raise a fund worth GBP 50 million through the issue of equity
shares to the public or to certain selected groups of investors. As an advantages, the
companies using equity share capital do not have to repay it like loans; and credit worthiness
does not affect raising money from this source. However, the major determinant of this

GLOBAL FINANCE3
source of raising fund is the loss of control over the company as each shareholder becomes
the owner of the firm (Caselli and Negri 2018). This also leads to potential conflicts
regarding sharing ownership.
Debentures – Debenture can be defined as a medium to long-term debt instrument that the
large companies use for borrowing money at a fixed interest rate. Issue of debenture is
another key funding source in the global financial market that can be used by a company for
raising GBP 50 million. There is similarity between debentures and corporate bonds where
there is not any security of collateral (Biswal 2015). There is difference between debentures
and stock issuance as the debenture holders are not the partial owners of the firms. Therefore,
in the place of gaining guarantee of the firm’s total gains, debenture holders receive an
assured proportion of return on their investments. Issue of debenture is a good fund raising
option for the companies as there is no need to share control where the percentage of interest
is also low. As advantages, raising fund through issuing debentures does not dilute the control
of equity shareholders on management as debentures do not carry voting rights; and issuing
debenture is less costly. The main disadvantage is that issue of debentures reduces the
capacity of the companies to further borrow funds.
Conventional Loans – Conventional loan can be defined as a kind of mortgage loan that the
government does not insure or guarantee. As an alternative, private lenders or private
financial institutions back up these loans. Convectional loans from the financial institutions is
a useful funding source for a company to raise GBP 50 million in the global financial market.
Under this methods, business loans are offered to the companies by the banks and other
orthodox financial institutions so that the companies can expand in the new markets. Lower
interest rates can be seen in these loans as compared to the venture capitalists firms, but the
companies are required to maintain collaterals for taking these loans. In order to raise the
required fund of GBP 50 million, the firm is needed to present a detailed business plan