Description
Deliverable Length: 700–800 words
Companies seek the lowest average rate of financing costs to capitalize the business. Common sources of financing are as follows:
- Common stock equity
- Preferred stock equity
- Bond debt
Explain how the following risks may affect these 3 sources of financing in international capital markets. In addition, explain how these risks may influence a company's international weighted average cost of capital (WACC):
- Default risk
- Inflation
- Interest rate risk
- Stock and market volatility
Explanation & Answer
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Running head: EXCHANGE RATE RISK AND CAPITALIZATION
Exchange Rate Risk and Capitalization
Name
Institution
Date
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EXCHANGE RATE RISK AND CAPITALIZATION
2
Common Stocks Equity
The secure representation of ownership in a corporation is what is termed as common
stock. The exercise of control is normally done by the holders of common stock who elect the
board of directors and vote. This has resulted to common stock being referred to as voting share
or ordinary share in other parts of the world (Faulkenberry, 2015). Common stocks are the most
widespread form of ownership of public corporations and companies. Stocks are a partial
ownership of a company, and that’s why they can also be referred to as shares. Throughout the
day on a stock exchange, stocks are bought and sold (Faulkenberry, 2015). Thus, the price of
a share of a stock rises and falls depending on the demand. Stock prices can be affected by
company earnings, public relations announcements, and the health of the US economy.
Preferred Stock Equity
A class of ownership in a corporate that has a higher claim on its earnings and assets
than common stock is what is regarded as preferred stock (Paramesw...