Exchange Rate Risk and Capitalization

Deliverable Length: 700–800 wordsCompanies 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