International financial markets Essay Example | Topics and Well Written Essays - 2000 words - 2

International financial markets - Essay eventBonds and stocks are types of securities, and they are each related to a different set of circumstances that govern the alliance between investor and investee.Financing with stocks and bonds is a delicate matter for a company because it impacts on the bulletproofs assess of return as well as financial risk. Financing through righteousness usually has a higher cost of capital, because equity holders are entitled to a pro-rata share of the profits. Theoretically, therefore, stockholders pass judgment returns have no limit. However, since the stockholders are not entitled to any returns if the company incurs losses, then there is no default risk associated with equity. On the other hand, debt capital entails a cost of interest to the borrower-firm. Interest order associated with long-term debt are lower than the cost of equity to the firm, because debt is contracted at a fixed rate and is therefore limited to that rate, even though th e firm earns much higher rates of income. There is a risk, however, associated with the possibility of default. Even if the firm incurs losses, its obligation to pay interest on its debt is fixed, therefore its inability to go steady with interest payments may incur for it costly penalties.The nature of the firms line of merchandise affects the firms ideal capital structure that is, the proportion of the needed capital it may finance through debt and through equity. The following are examples of industries and their average debt and equity ratios. It may be noted that companies in the same business do not necessarily have the same capital structures. For instance, in the consumer non-cyclical industry, Starbucks is financed entirely by equity, small-arm Kellog relies slightly more on debt financing rather than equity.Raising cash from the bonds market. Large corporations could raise money through the bonds market. The process involves the underwriting of the bonds float by eith er one or several