Question

A firm based in Norway has found that its growth is restricted by the limited liquidity of the Norwegian capital market. List the firm’s options for raising money on the global capital market. Discuss the pros and cons of each option, and make a recommendation. How might your recommended options be affected if the Norwegian krona depreciates significantly on the foreign exchange markets over the next two years?

Answer 1

Answer:

The Mexican firm can bring capital up in the worldwide value Market, worldwide security showcase, or the Eurocurrency advertise.  

The worldwide value Market

The firm can offer corporate stock to outsiders on the worldwide value showcase. Numerous speculators don't accepting stock outside their national or closest stock trade. The Mexican firm can show itself on the New York, London, Hong Kong, and so on stock trade to get more speculators at a lower cost of capital. The drawback is that organizations need to set up their budget summaries in a way worthy to the outside stock trades.  

The worldwide security showcase  

The firm can offer a guarantee to pay in two habits, an outside bond and a Eurobond. Outside bonds are paid in the cash of the country where they are given, Eurobonds are paid in a money other than the cash where they are given. On the off chance that the firm sells an outside bond in the US, it will take care of head and enthusiasm for dollars. On the off chance that it does as such in Britain, the bond will be taken care of in pounds. With a Eurobond, the firm can sell the bond in Britain yet take care of it in dollars, yen, and so forth. Advantages incorporate less guideline, not following the local cash guarantor's money related revealing prerequisites, and not paying the local money backer's annual expenses. For instance, if the organization obtained in dollars from Britain, the organization would not need to reply to the SCC, record as indicated by US GAAP bookkeeping gauges, or make good on US annual charges  

The Eurocurrency showcase  

In the Eurocurrency showcase, the Mexican firm can apply for a line of credit in dollars from Britain, an advance in yen from the United States, or an advance in Euro in Japan. Less guideline brings about a lower financing cost on Eurocurrency credits. Lamentably, less guideline additionally implies a somewhat improved probability of bank disappointment.  

One drawback to these is outside trade risk. In the event that the Mexican peso devalues, the peso has less worth comparative with another unit of cash. More pesos should then be utilized to pay dollar or euro named premium installments, rule installments, profits, and so forth. In a specific way these techniques for raising outside capital have remote trade risk. Since profits don't need to be paid while advances, premium installments, and standard installments do; it may be increasingly alluring to utilize the worldwide value advertise. The main path for the Mexican firm to totally stay away from exchange risk is to utilize the Mexican capital markets.