Corporate Finance

Reasons for seeking a stock exchange quotation

The stock exchange serves a variety of functions. It enables organizations to raise new equity finance via the sale of shares or new debt finance via the issue of debentures. It also provides a well-regulated, secondary market to help ensure an active market where investors can buy or sell investments and have a reasonable level Read More…

Corporate Finance

Debt or equity finance?

Key considerations when deciding between debt and equity finance include: a. The effect on control: Issue of equity will most likely mean new shareholders. Consequently, the percentage held by an existing shareholder may be diluted over time. Directors need to carefully consider the effect on control of any decision to launch onto a recognized stock Read More…

Corporate Finance

Convertible bonds

These are bonds which carry a rate of interest (like any other bonds) and give the owners the right (but not the obligation) to exchange the bonds at some stage in the future into ordinary shares according to a prearranged formula. Usually the conversion price is 10-30 percent greater than the existing share price. So Read More…

Corporate Finance

Loan stock and bonds

‘Bonds’ is a term used to describe various forms of long-term debt. Loan “tock is long term debt capital raised by a company for which interest is paid, usually half-yearly and commonly at a fixed rate of the nominal value of the stock. Bonds are a form of loan stock, legally defined as the written Read More…

Corporate Finance

What companies should consider before choosing sources of long term finance

Companies, whether public or private, obtain long term funds from a variety of sources, which could be: a. New issues of equity shares, preference shares, loans stock or bonds, b. Retained profit c. Bank borrowing (medium-term) Equity finance is not a single source of finance, but a group of alternative ways of raising risk-bearing funds. Read More…

Forex

The foreign exchange market

The foreign exchange market is the electronic trading of foreign currencies between commercial banks, dealers, and businesses. Generally, the foreign exchange markets have no central marketplace, and participants trade via sophisticated communications systems. The following is a typical classification of the participants in the foreign exchange market: 1. Arbitrageurs: Arbitrageurs seek to earn risk-free profits Read More…

Corporate Finance

The difference between interest rate cap and interest rate swap

An interest rate cap is an option that sets an upper limit to the amount of interest a company will pay on a floating-rate loan for a series of interest rate periods. If the interest rate on the loan breaches the upper limit that has been agreed, the option is exercised and a cash settlement Read More…

Corporate Finance

The use of financial derivatives and interest rate swaps

Financial derivatives are traded products that have developed from the securities and currency market. Examples of derivative products include futures and options in currencies and interest rates. There are two main purposes for which these products might be used: 1. Hedging against known risks: This can best be explained by means of an example. A Read More…

Corporate Finance

Interest rate swap and other types of swaps

A swap, whether an interest rate swap or a currency swap, can simply be described as the transformation of one stream of future cash flows into another stream of future cash flows with different features. An interest rate swap is an exchange between two counter-parties of interest obligations (payment of interest) or receipts (investment income) Read More…

Corporate Finance

The expected value of market price per share and option price

To calculate the expected value of market price per share and the expected value of option price, the probability distribution needs to be considered. For example, the following table shows the probability distributions with respect to the market price per share of Company A and Company B: Options (calls) exist for each of the shares, Read More…