Exchange Rate Risk and Capitalization
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
Solution PreviewCurrently, the rise in globalization, as well as increased instability of currencies, have posed major and numerous risks to companies operating internationally as well as domestically. This is because exchange rate risk is the dangers exposed to organizations when operating with……………………….
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