Question

1. Explain the reasons why a company decide to raise capital internationally? And what could be the major challenges when raising capital internationally.

 

 

Answer 1

International capitals markets have the same use as domestic captial markets, that is, to help companies, individuals etc raise or lend money.
Some of the reasons why a company decides to raise capital internationally :-
1. Cheap Borrowing Cost - Many domestic capital markets are too small and saturated and thus becoming too costly for companies to borrow. International capital markets are a lot larger and can give same amount of funds at a much lesser cost.
2. Global Recognition - When a company goes global to raise funds it gets more popularity and more eyeballs from various investors and consumers internationally thereby increasing the recognition and reputation of the company.
3. Diversifying Risks - Since international capital markets are much bigger there are lot of opportunities to raise funds from different pool of investors which can help in diversifying country specific risk. This can be considered good for that company's investors.
Challenges in rasing funds from international markets :-
1. Longer Duration - Although raising capital internationally can be cheap but however it can sometimes be a cumbersome process to close a deal.
2. Domestic recognition - If the capital is raised from the domestic market from a well known domestic investor this can help in growing the reputation of the company domestically as people familiar with the domestic investor will start to trust the company's products.
3. Market Understanding - Foreign investors can bring in a lot of money at cheaper rates but there is a high chance that they might not be able to understand the domestic market. They might advice the company to operate on things that they know in their own market as opposed to what is prevalent in the market in which the company is present.

International capitals markets have the same use as domestic captial markets, that is, to help companies, individuals etc raise or lend money.