Part A - Suppose you are a Chief Financial Officer (CFO) of a UK based listed company. The company is currently trading at £10 per share and 100 million shares in issue. The total market value of the issued share capital of the company is £1,000 million. You have been requested to write a report to the board of directors with respect to raising an additional funding of £500 million to enable the next stage of development of international projects to be carried out.
Note:
For the report in Part A, it should critically review the advantages and disadvantages of the main funding options with many appropriate academic references. Further, your report should form the basis for a discussion at the next board meeting. Especially, it would be expected that this report would include the different options available through the equity and debt markets.
Part B - This 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 the 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 payment in international currencies.
Note:
For the report in Part B, it should critically discuss and compare the use of derivatives including forwards, futures, options and swaps to hedge Foreign Exchange (FX) Risk. By using many appropriate academic references, discussions may include:
- how it works in mitigating FX risk.
- advantages and disadvantages of each type of derivative in managing FX risk.