Global Finance Report: Funding Strategy for International Projects

This report, prepared for the directors of a UK-based company, evaluates funding options for international expansion. As the Chief Financial Officer, the author assesses the need for £50 million in additional funding to support international projects, considering increased competition and market demands. The report analyzes the advantages and disadvantages of raising capital through debt markets (bonds) versus equity markets, including factors such as control, tax benefits, and financial discipline. It proposes specific investment strategies, including boosting production capacity through machine upgrades and reducing production waste through a recycling system. Additionally, the report recommends customer loyalty programs and exploring fiberglass pipe insulation products to generate revenue. Hedging strategies using future contracts are also discussed to mitigate risks associated with steel price fluctuations. The report emphasizes the importance of effective fund utilization, project planning, and cost control to enhance profitability and maintain a competitive edge in the global market.

Running head: GLOBAL FINANACE
GLOBAL FINANCE
Name of the Student
Name of the University
Author note

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Coursework assessment part A
Concider yourself as the chief financial officer of a UK based company that is listed in the
stock exchange of the country. The current price at which the shares of the company are
traded is £10 and the number of shares outstanding is £10 million. The total market
capitalisation of the issued share capital of the company is £100 million. It is requested to you
to write a report to the directors of the company with respect to raising an additional funding
of £50 million to enable the further improvements in the international projects that are to be
carried out.
This to inform you that number of competitors in our business has increased rapidly in
the recent years. For that reason and as per the requirement of the current market situation it
become essential for us to expand our dimensions internationally, and give more emphasis on
our cost , quality , price , and in the promotion of our products in order to acomplish our
desired objective (Baños-Caballero García-Teruel & Martínez-Solano2016).
As we are the pioneer in the insulation business and our peer companies has not been
able to attain the standards of quality products that we produce and our renowned brand has
helpeds us tro hold the top position in the market. Further our joint venture is world’s most
popular company and we have certified by ISO 9001, 14001, and 18001.
We have adequate capital to operate our present business and the current ratio of our
company is 1.0 in addtion to that our annual return on invetment is 52% which indicates our
strong financial condition.the extra capital that we need is for the expansion of our business
in the international market.
The capital can be raised from the debt maret (bond/ credit) , the debt market is
amarket from which the the participants can issue new debt known as the primary market or
from the sceonadry market can buy or sell debt securities. The fund can be raised in the form

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of bonds, and it may include notes bills and many other instruments. The benefits of issuing
bonds is that it is very flexible methodf of raising fund. The bonds are avilable in both
secured and unsecured forms and we can take decision based on the priority thay take over
other type of debts. The donds also offer a way to alleviate the fiancila postion of the
company by providing susbstantial debts on a fixed interest rate. This benefi can only be
avialed from the debt market and the equity market will not be able to provide such facilities
(Ključnikov & Belás 2016). Some of the other benefits of raising funds from the debt market
ared stated below:
Retain comntrol:
When we take debt from any lending institutions the lender does not make any
intereference in the management of the company. In case of debt finacing a business
relationship is developed and that relatuionship ends once the debt is repaid by us.
Tax benefits
The interst that we pay for taking the loan is allowed to be deducted from the profit so
in this way it helps in reducing the tax burden.
Easier planning
As it has been possible to know in advance how much amount we have to pay for the
principal and the interest at the end of any specific time it become easy to set a budget and
make financial plans.
Like the benefits debt fiamncing has many faults also some of these are enumerated below :
Qulaifiaction requirements
To receive funds from the lending institutions it is required to satisfy some basic
criteria like good credit rating , strong financial position.

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Discipline
We have to show desicipline regarding our earning abilities in order to timely
repayment of loan .
Financial judgement
A company which is highly dependent on debt are often treated as high risky
company and that reduces the interest of the potential investors to invest in the company .
Gurantee
For raising fund from the debt market it is essential to keep some of the assets of the
company as security aginst such loan. We amy also asked to give personal guarntee for the
loan which leads to put our own assets at risk.
How essential is it for the company to retain the full control of the management ? how
essential is it to know approximately what we have to pay at thed end of the month? Is it is
possible for us to make regular monthlty payments? Have we meet the crteria for debt
financing? How good our credit history is?
If we have the bvelief that our business will be able to produce good profit , then in
that case we will select for a loan , rather than opting for raising funds by issung equity.
How good our credit rating is ? do we have enough assets that can be given as
collateral? Are we at ease with using it ?
“As the world economic situation and prospects , 2018 demonstrates current macroeconiomic
condition offers policymakers a greater scpoe to address some of the deep rooted systemic
issues and short term thinking that cointinued to hamper progress towards the sustainable
development goal”-Antonio Guterres , UN Secretary –General.

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The main aim of this report is to evaluate the requiremts of the international markets
and then try to get a appropiate sorce for raisisng them. The source should match as per the
requirement fo the business . if it is observed that the funds are required for longer time than
in that situation loan term sources like share capital debentures and term loanscan be used ,
so in our case share capital will be concidred as the suitable source for raising funds.
However it is more important to make effective utilisation of funds and raising of the funds.
The funds should be used in such a manner that it can be possible to make optimum
utilisation of the funds and the cost of raising of the fund should not be higher than the
returns from the use of the fund.it is essential to be confirmed that the funds are not kept idle
at any point of time and always utilised effectively.
It isessential to give preference to to these projects that are beneficial for the
business. The project’s palanning and control is made with trhe objective to increase the
profitability of the organisation. it is right to state that money creates money and to increase
profitabilty , it is required to invest sufficient funds. The paln of the project should be made
in such a way that the concern don’t have to suffer from financial crunch neither it wastes
more fund than required. It si required to be maintain a proper control in order to ensure that
scarce resources are not wasted unneccesarily on unproductive operations. The profiatbilty of
the business get effected by the cost of aquiring the funds (Nassr & Wehinger 2016).
Consequently , I want to put some suggestions that will help us to enhance the
productivity and fulfil the requirement of the market without detoriating our positions in the
market as the compatriots are coming up to enter in the industry (Sazonov, et al 2017).
We have to mount a booster for our current machines which will increase our production by
70% ande for that our current production will increase from 240MT / annum to 408MT/

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annum, this will be more than enough to satisfy our demand. This project can be assigned
within two months and the project will cost appproximately 40 million.
Further to this we have to reduce the percentage of production scrap. As on yearly
basis we have to incurr 3 million in the cost of sales and for that rerason the cost of waste
disposal increases and annually we have to spend more than 1 million. In respect to that our
operation team has given a suggestion that we should install a scrap recycling system that
will help us to bring a control in the production scrap and reduces the cost of waste
management. At the same time in thye future we are not going to incur solid scrap which will
help us to save approximately 4 million per year from the from the scrap produbction and the
management of waste whiuch will support the green development and reduces environment
pollution. As per the estimation of the GASCO australia the above scrap recycling project
will costs 10 million (Huang 2016).
The number of the competitors of the wool line is large in number so in this situation
we cannnot control the market so in this case wew have to bring in customers by increasing
our customer’ s loyalty. In case we have loyal customers we donot have to worry about the
fact that our brand is showing up in the serach result or not, as we will have buyers who will
specifically buy our products. The way we treat our cutomers become the main reason why
the customers love our products. Whatever we do both in offline and online should be
customised in accordance to the need of our customers. Even a single rude employee can
spoil the sales and customers. It is right to state that even if a customer loves a company and
everyone except the persons who works here. Any employee who fails to provide exceptional
service should be eliminated. It is very difficult to retain customers without actively running
them off (Bloom Sadu & Van Reenen 2015).

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In addittion to that we have to install the scrap reycling system to reduce losses since
the above product will generate more rejections.
The alternate option that we have ius that we can start using fiberglass rigid pipe
insulation producxt for use on hot, cold,concealed and exposed piping in the commercial
building , industrial fdacilities and processor power plants. We will be abl;e to generate more
reveneue as the fibergflass pipe insulation is designed for application temparatures from 0°F
to 850°F (-18°C to 454°C). moreover this project cost is maxed 50 million (Persad 2018).
The loophole of this project is that we have to wait for 3 to 4 months and requires
more operations depreciation and maintenance costs.
Both the projects required structural steel building and for those we are hedging these
with the future contracts are treated as one of the most common type of derivative used to
hedge risk. A future contract is an arrangement between the parties to buy or sell assets at a
particular period in future for a particular price. The main objective of using future contracts
to hedge is to accurately offset their risk since the current steel market is very reasonable and
we are expecting that the price of the steel will increase in the future (Huang Ritter & Zhang
2016).
The benefits of hedging are stated below
It is a very effective strategy for short term risk minimizing strategy for long term
traders and investors. Hedging tools can also be used to lock the profit. Hedging enables the
traders to resist the hard market situation. The successful hedging strategy helps the investor
to protect it self from the fluctuation of the commodity price changes, inflation , currency
exchanges, interest rate changes. The hedging strategy also saves time as the trader does not
have to check his portfolio with daily market volatility (Ghouma Ben-Nasr & Yan 2018).

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The drawbacks of hedging strategies are stated below :
This is involved with cost that can reduce the profit
As there is a direct relation between the risk and the reward so if the risk is reduced
then the profit will also reduced. For most of the day traders, it is very risky to follow
hedging strategy. If the market is performing well or moving sideways, then in that case it
will not be possible to derive benefits from hedging. High capital is required for the future
and option strategies and also the amount of return is also high (Cramton & Ockenfels 2016).
The following are the drawbacks of the hedging.
At the last stage, we have the desire to invest with equity financing for the above
project. We have decided to consider equity financing, as equity financing has the following
benefits such as no repayment of loan is required , the business does not have to make
monthly repayment of loans principal and interest amount,. This in return give us the
opportunity to channel more fund in the business . the equity financing will be more
preferable if we does not have the that much creditworthiness or credit rating to fulfil the
criteria to avail loan (Drover et al 2017).
The following additional; benefits are stated below:
Learn and gain from partners
It will be possible to make partnership with more knowledgeable and experienced
partners and that will help our business to take the advices of these experienced persons and
operate more efficiently (Chen & Manso 2016)..
Profit sharing

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Though the investors will take the proportion of profit but there, experience and
knowledge will help us to earn more profit than we have earned earlier (Ding Liu & Wu
2016).
Loss of control
Due to equity financing it is required to share the control of the organisation with
others that is the only negative effect of equity financing.
Potential conflict
As we have to share the control of the organisation with others it is often found that
the organisation faces conflict with the investors. The investors may have a different view or
approach regarding solving a issue whereas the management may think that the situation may
be solved in a different way. In that situation conflict arises between the organisation and the
investors. So if the organisation faces creditworthiness issue then in that case it can select
equity financing. While if the organisation feels that it can arrange enough fund to repay the
loan then in that case the company can raise fund from the debt market. Would we rather
share ownership than have to repay loan? Are we happy with sharing the control with equity
investors (Chod 2016).

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Coursework assessment part B
Additional funding will allow the business to become more global with the opportunity to
develop a market in numerous countries with payment being made in their local currency.
The directors are conservative in their attitude to risk. You have been requested to provide a
report to the directors critically evaluating alternative derivatives including forwards, futures
options and swaps that are available in the market in order to minimise the risk with respect
to payments in international currencies.
As our business become global and are exposed to the international market then in
that situation we have to make payment in the local currencies. This is to explain the different
currency risk that may arise within the companies and to describe which methods and
instruments are to be used to minimise the risks that are connected with the currency market
(Zhao Zhen & Litvinov 2018).

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In the past decades, it has been observed that the international trade has increased
rapidly. To take the advantage of other markets more and more firms decided to expand their
operation in foreign countries. This may force the firms to face different kind of risk like the
currency risk which the firm does not face before. The value of a currency may fall due to the
fluctuation of the currency rate of another country. The companies are required to update
with the methods of managing the currency risks in order to protect themselves from the
adverse effect of the currency fluctuation.
Our company is operating in the international market, irrespective of the factor what
kind of business we are doing, in the daily business life it is very essential to know currency
risk management methods. The two main type of currency risks that organisations faced are
the transaction risks and the translation risks. The currency risks bring both opportunities and
threats and the company has to find out different ways in order to deal with the currency
risks, the companies generally follow the company’s own risk management policy. The
forward contracts swaps are considered as the most important instrument to reduce the effect
of currency risks (Warusawitharana & Whited 2015).
On the other hand, the derivatives are the frontrunner tools that can be found in the
investor’s portfolio. For their unique characters the derivatives meet the more specialised
requirement that arise in the current context of a global financial system and they allow
companies and individuals to protect themselves from the currency risks accept them in an
effective manner (Waemustafa & Sukri 2016).
We will loose our money if we do not use leverage strategy effectively, as leverages
have specific maturities and on that date they get expired unlike the cash market where there
is option to hold the stocks for longer time. Since its beginning, many critics have blamed
derivatives as one of the most harmful instrument as it results in to the loss of huge money

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which occurs to happen since its inception and is increasing still date. The derivatives are
considered to be the instrument that increases the speculation in the market which is harmful
for the retail traders who are considered to be the backbone of the stock market. Only the
experts of derivatives can make effective strategies and can earn from the derivatives
otherwise a non professional will only suffer loss from the derivative market (Swanson
2017).
In the spot market and the forward market the shares in the stock market are traded.
There is a delivery of shares against the payment in the spot market. Whereas in the forward
market the agreement is made for future payment and delivery. This may or may not
materialise. To prevent the fall in the price of the shares the traders enter into the forward
market, this is called hedging which acts as an insurance against the risk of fluctuation of the
price of shares (Subrahmanyam Tang & Wang 2017).
Risks arise due to the fluctuation in the price of the securities or due to a movement in
the interest rate on debt instruments. The financial companies undertake derivative contracts
in the future and forward markets in order to protect the investors from the fluctuation of the
share markets (Newbery 2016).
For future delivery of stocks, commodity or currency a contract is entered between the
buyer and seller this kind of contract is called forward market contract. If the price at which
the buyer buys a forward contract is less than the spot price then in that case the buyer will
gain and if the price is higher than the spot price then the buyer will loose. Thus hedging
against fluctuation prices is done in the forward market. This is applicable to stock currency
and goods (Nair 2018).
The forward market is classified in to two type’s commodity forward and financial
forward. The currency forwards comes under the category of the financial forward. The