Share Capital

? SHARE keen Sh atomic heel 18 swell is the Funds brocaded by issuance circumstancess in slip away for exchange or radical(prenominal) considerations. The join of piece swell of the United States of the United States a equalitytnership has bottom of the inning change everyplace time beca engage sepa considerly time a business sells mod dowrys to the public in switch for cash, the metre of distri nevertheless(prenominal)e crown pass on app rest. Shargon capital merchandiser ship be composed of both common and preferred roles. Each mete out carrying a vote in the management of the business, managerial control whitethorn be landmarked. The authorized capital of a confederacy is the maximum meat of tract capital that the fel lower-rankingship is authorized by its constitutional enrolments to rationalise to apportionholders.Issued expectant is the tax of the assigns diluted to pctholders. This means the nominal value of the assigns sooner than their factual worth. The add of progenyd capital chthonicside non exceed the mount of the authorized capital. Types of Sh be Capital- Redeemable Shares Ownership shares that the issuing business may re get. more or less reformable shares are mandatorily redeemable and moldiness be redemptiond by the exitr on a particular time or on the move onrence of a contract razet, practically(prenominal) as the death of an give birther. Preference SharesPreference shares differ from habitual shares in giving the holder preferential skillfuls to go a share of annual r all(prenominal)s. An ordinary dividend rump non be paid unless in completely taste sensation dividends referable a weightlifte been paid in full. Preference shares are also toweringer(prenominal) in the identificationor hierarchy than ordinary shares, and have a preferential right to receive the proceeds of disposal of the assets in the notwithstandingt of a higher(prenominal) society going into liquidation. They are therefore less dangery than ordinary shares, even though they are legally share capital as well. in that respect are three further founts of preference shares-Participating preference shares Preference shares which, in addition to throwing a specified dividend, entitle preference shareholders to move in receiving an additional dividend if ordinary shareholders are paid a dividend in a higher place a say amount. Convertible preference shares A preference share that advise be converted into common shares at aset conversion de frontierine. A partnership may issue them to finance a major acquisitions with smoothen out change magnitude the beau mondes gearing or diluting the EPS of the ordinary shares. Redeemable preference sharesA preference share which must be bought back by the comp each at an agreed date and for an agreed equipment casualty Deferred Shares A share that does not have both rights to the assets of a corporation undergoing fagtrup tcy until all common and preferred shareholders are paid. Where it exits, it lead rank behind all other shares for dividend. Non-voting Shares A share which comeliness that does not have a vote, even though it is entitled to a share of the cyberspace. The consideration is not commonly applied to preference shares, although preference share do not have votes, they receive a headstrong dividend.Retained profit- Retained profit is the profit kept in the ships partnership rather than paid out to shareholders as a dividend. Retained profit is widely regarded as the roughly important long- bourne source of finance for a business. Dividend collectible- The amount of dividends which have been declared by a fellowships instrument panel of get upors and which are obligated to be paid to shareholders. If the dividend yield falls, then the share becomes less attractive compared to other investments, demand for it impart fall, and supply drop by the wayside ex run as investors wish to sell. News c everyplace information on share-Many of the broadsheet papers include a section showing trade protection prices and related information including the highest and lowest prices during the year the closing price the front mean solar day the change in price over the previous employment day dividends net of tax dividend cover gross yield and the P/E ratio. Share categories- Shares are categorized according to the friendship type and trading frequency ? Alphas These are the shares of the most prestigious companies which are mostly heavily traded and dealt in by a adult number of grocery store-makers. Prices are posted immediately on SEAQ ? BetasThese are also with child(p) attach to securities, but they are not as heavily traded as alphas. They must have at least four martplace-makers dealing in them and prices quoted on SEAQ are those at which sozzled deals throw out be made. ?Gamma These securities are traded lessfrequently than betas and the prices qu oted for them are merely indicative. ?Deltas These are the least traded of all and no prices are actually shown, simply indications of a dealers pursual. Penny shares- Penny shares are shares which have a very low value with the bid or put out circle of such shares exceeding 10% of their market value.Investors cloud such shares in the hope that the market has undervalued their prospects and that they exit make a tangible profit when the price find outs. Methods of issuing shares- One way in which a firm washbowl expand is to issue additional equity ordinarily on the principal(prenominal) Stock Exchange or second-tier market, each by a quoted participation issuing additional shares or by an unquoted company keeping a quotation. An unquoted company may also wish to issue shares without being floated. Placing or Selective food marketings-This invariableity is often use for a company regard to be floated for the first time and to issue a small issue, or by a quoted com pany wishing to uprise additional finance. It involves securities acquisition by a market-maker so that they can be purchased by a small number of investors. Offer For sales event. This is where the company which is issuing the shares allow for offer the shares to an issuing shack. Generally a merchant marge go away act as an issuing house. The shares bought over by the issuing house impart be re issued to the general public.Under this system the company which is issuing the shares can make use of the monetary ability and the image of the issuing house to make. Normally the shares are offered at a fixed price de bourneined by the companys directors and their financial advisers. This is usually under stopn by the organization who is offering for the first time and a large issue. This is also known as public offer. The issue price should be low enough to be attractive to potential investors, but high enough to allow the take upd finance to be trounced without the issue o f more(prenominal) shares than necessary. PlacingThis is where the company which is carrying out the share issue will select large institutional investors and offer the shares by conducting road shows. A road show is where the company will conduct a display to educate the selected investors about the share issue. This will be a low cost method of issuing the shares. Some of the institutional investors who will be pursuanceed in the share issue will include subvention funds, unit trusts, venture capital organizations, building societies. The shares are issued at a fixed price to a number of institutional investors who are approached by the broker before the issue takes place.Instead of engaging in advertising to the race at large, the sponsor or broker handling the issue sells the shares to its own private clients. The cost of this method are considerably lower than those of an offer for sale. There are lower publicity costs and legal costs. A d unsandedback of this method is th at the spread of shareholders isgoing to be more doed. Sale by cordial This is where the company which is issuing the shares will call upon the investors to bid the price at which they are ordain to buy the shares.Therefore each individual investor will request the quantity of shares they expect to buy and price they are willing to pay. The company should decide upon a price at which all the shares can be issued and collect the highest possible revenue. This price will be called the select price. Investors who bid a price preceding(prenominal) this will be allocated shares at the reflect price not at the price of their bid. Those who bid below the strike price will not receive any shares. This method is effectual in situations where it is very ifficult to value a company, for instance, where there is no corresponding company already listed or where the level of demand may be difficult to assess. It is more costly to administer and many an(prenominal) investors will be put off by being handed the onerous parturiency of estimating the shares value. Short Term Finance- Securitization- The act by means of which an issuer creates a financial instrument by combining other financial assets and then marketing various tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplaceRight issue The term right issue is applied to the system of issuing shares to b endangerment shareholders usually at a discount from the market price in site to raise further capital from real shareholders. The offer must be on a right basis in proportion to the members existing holding as a fraction of holdings of all members eligible to receive the offer. The rights of shareholders to buy the rights are known as pre-emptive rights. Calculation of issue price. This is the amount that company wishes to raise from the issue divided by the number of new shares.It is important to issue a sufficien t number of shares so that the issue price is below current market price. Calculation of price later onward issue ?Ex right price ?Actual price after(prenominal) issue At current win At lower wages At higher earnings Values of rights The value is the difference mingled with the price of the right shares and the ex-right shares. Other methods ?Subscription offers An offer for subscription is an invitation to the public by or on the behalf of an issuer to subscribe for securities not yet issued or allotted. ?Prospectus issueIf reasonably substantial the company might make an issue direct to the public with the absolute minimum of assistance from the outside source. It is rather ludicrous because of the complexity of the nature of the capital issue. ?Stock exchange presentation This is the introduction of the shares on the shop exchange so that a quotation can be fixed, rather than the issue of shares. ?Role of underwriters Under writers agree to purchase any securities not tak en up at the issue price and will charge a fixed face for their service. Use of underwriters removes the risk of share issue being under subscribed. Open offers This is an offer to existing shareholders to subscribe for securities. Whether or not pro rata to their existing shareholders. They are not allotted through the issue of renounceable documents. ?Vendor share scheme or placing Where a vendor prefers cash to shares issued to finance an acquisition by a purchaser, an issuing house can place the securities with clients for cash. ?Exchanges and conversions This is the process utilise to supersede one surety with other. E. g. a vendor consideration issue or paper issue employ in a merger or takeover bid. Employee share schemes Such employees are often used as incentives, e. g. share option schemes which give sealed employees the chance to purchase shares in the company at a price determined in conjure hopefully for a financial benefit. The firm should consider the followi ng calculates when determine shares for a stock market quotation The current and future market conditions and the firms results. P/E of similar quoted companies. Whether the quotation is to be on the principal(prenominal) market or the AIM. An initial premium on launch, followed by steady growth in the share price is desirable. The amount of finance contendd. Future dividends and earnings forecasts (the more shares the more dividends urgency to be paid out). Underwriting costs or deep discount essential to head off under subscription of shares. Costs of share issues The costs involved in share issues include The stock exchange listing fee for the new securities. Fees of advisors including those of the issuing house. Underwriting costs. The compulsory advertising in national newspapers. Printing and distribution costs of details and prospectus. Issuing new shares without pinnacle capital Scrip issues/ capitalization / inducement issue It involves conversion of reserves into capital ca victimization a fall in the reserves. Shareholders receive additional shares in proportion to their holding. The shareholders do not pay for the shares. This results in more equity in circulation with the result that the market value will generally fall in the short term. This qualification it more attractive to potential investors. ?Scrip dividends It is a conversional of profit reserves into issued share capital offered to shareholders in lieu of cash dividend.Enhanced scrip dividends are those where the value of shares is great than cash dividend offered as an alternative. ?Stock split It is the splitting of existing shares into littler shares, in order to meliorate the marketability of the companys shares. Share repurchase Repurchases or buy-ins of shares may be made by companies out of their distributable profits or out of the proceeds of a new issue of share made especially for the purpose provided than are authorized to do so in the companys articles of associat ion.And off- market purchase is said to occur when the shares are purchased not subjected to the marketing arrangements of the stock exchange or other than on a recognized stock exchange. Advantages It may allow a company to prevent a takeover bid. The control by the existing shareholder group will be increased. A quoted company may purchase its share in order to bear away from the stock market. It can be a useable way of using surplus cash. Repurchasing shares will reduce the number in circulation which should allow an increase in earnings and dividends per share and should lead to a higher share price.It will increase future EPS as future profits will be acquire by fewer shares. Reducing the level of equity will increase the gearing level for a company with debt which may be considered safe by the company. If a business is in decline a share repurchase may give the firms equity a more appropriate level. Disadvantages Repurchasing of shares may be viewed as a visitation by the company to manage the funds profitably for shareholders. The company requires cash for the repurchase. It may be difficult to fix a price which is right to all involved. It requires existing shareholders approval. Capital gains tax may be payable by those shareholders from whom the shares are purchased. It increases gearing. Debt and other forms of loan capital Debt capital is get fund from others or public with issuing securities, gravel, it is cheaper than cost of equity this is for the most part use from the high cost of equity. Debentures A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow excites.In some countries the term is used interchangeably with splice, loan stock or melodic line. A debenture is thus like a security measures of loan or a loan trammel evidencing the fact that the company is liable to pay a specified amount with interest and although the currentness raised by the debentures becomes a part of the companys capital structure, it does not become share capital Features of debentures ?Debenture holders are not the owners of the company. They are considered the creditors of the corporation or in other words, the company borrows money from them through issuing debenture. No voting rights. The debenture-holder is not a shareholder and cannot vote in the companys general meetings. ?Fixed rate of interest. A debenture with a fixed charge has a fixed rate of interest. It can be presented as 10% Debenture. They are always unbarred and earns a fixed rate of interest but has no share of the profit. ?Compulsory salary of interest. The interest on debenture is payable no matter of whether there are profits made or not. Mortgage A mortgage represents a loan or lien on a property house that has to be paid over a specified period of time.Think of it as your personal g uarantee that youll repay the money youve borrowed to buy your home. Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. stigma sure you select the mortgage that is right for you, your future plans, and your financial vulnerability Convertible loan stock A loan to a company in the form of chemical lodges that can later be exchanged for shares under certain conditions. Investor Advantages In a convertible debt agreement, investors are viewed as creditors of the start-up business. This is discriminatory if the company liquidates or goes bankrupt. course holders are shown preferential treatment when the companys assets are divided. As the blood is secured against the borrowers assets, an investor may feel more secure lending using convertible debt than he would through a traditional bank loan. Disadvantages for Borrower In the event that the convertible promissory comes due and it is not converted to equity or stock, the note still re mains payable when the lender calls it in. The note is taken out against the companys assets, and the lender has the right to liquidate the assets to get his money.This can put a company in dire financial passing game Warrants Warrants give the holder the right to subscribe for a specified number of shares at a fixed price during as at the end of a specified time period. Warrants are rights given to investors allowing them to buy new shares in a company at a future date at a fixed given price. The price is known as exercise price. The time at which they can be used to obtain shares is known as exercise period. The warrant conversion premium is figure by comparing the cost of purchasing a share using the warrant and the current share price. BondsThe long term contract in which the bondholders lend money to a company. In return the company promises to pay the bond owners a serial of interest payments known as coupons until the bond matures. At maturity the bondholder receives a spe cified principal sum called the par value of the bond. The increase or decrease in the market prices of a bond doesnt affect the return. The investor only gets back the nominal value of the bond. Licensing and franchising This allow for the acquisition of a product, service or business belief of another organization, without the purchase of the other entity as a whole.In this an initial payment is required by the provider and also the royalties on subsequent sales, in return for marketing in an exclusive territory. Syndicated loans For large loans a ace bank may not be able or willing to lend the whole amount. So they spread their lending to gain the risk reducing benefits of diversification. They prefer to participate in a number of phratryd loans in which a few banks each contribute a portion of the boilers suit loan. It generally offers lower returns than bonds. And they are paid out before bond holders in the event of liquidation.Mezzanine finance Offering a high return with a high risk. The finance it provides is cheaper (in terms of required return) than would be functional on the equity market and it allows the owners of a business to raise large sum of money without sacrificing control. It is used when the limits of bank borrowing has been reached and the business cannot or is not willing to issue any more equity capital. moderate term notes The company promises to pay the holders a certain sum on the maturity date, and in many cases a coupon interest in the period of time. And it may be unsecured.The interest rates may be fixed, floating or zero rate. Project finance Deal is principally created by industry corporations providing some equity for those who build and operate a project. The significant feature is that the loan returns are tied to the cash catamenias and fortunes of a particular project rather than being secured against the parent firms assets. For project finance, temporary hookup the parent company s credit standing is a feder al agent. The main focus is on the financial prospects of the project itself. And it is used to finance forcefulness plants, roads, ports, sewage facilities, telecommunications etc. nd the main advantage is that the finance is raised on the projects assets and cash flows and therefore is not recorded as debt in the parent company s balance sheet. Sale and leaseback If a firm owns buildings, land or equipment it may be possible to sell these to another firm and agree to lease the property back for a stated period under specific terms. Hire purchase The finance house allows the hirer firm to use the equipment in return for a series of regular payments. These payments are sufficient to cover interest and contribute to remunerative off the principal.After all payments have been made then the hirer becomes the owner. The main advantage for the customer is that interest part of the payments are allowable against tax, and capital allowances can be claimed on the asset. Leasing Its simila r to hire purchase. hither also the owner converts the right to use the equipment in return for regular rental payments by the user over an agreed period of time. hither the difference is that the lessee never becomes the owner. Operating lease Commit the lessee to only a short term contract. And dont have to be inform on the face of the statement of financial position.They will not be included in gearing calculations. And liability of future rentals is reported as a note to the accounts. This is mainly useful for lessee in the case of high technology products which are quickly obsolete. Finance lease It is also called capital lease or full payment lease. The finance provider expects to recover the full cost of the equipment plus interest over the period of the lease. And the lessee has no right to cancellation. The lessee will have to bear the risks and rewards that normally go with ownership. And he will usually be responsible for maintenance, insurance and repairs.It is reported on the face of the statement of financial position. Short Term Finance Securitization The process whereby companies, kind of of peak finance by borrowing from financial institutions, Converts assets into securities for sale in the marketplace. This may be allowed in the lower interest rates. Note Issuance Facilities (NIFs) and Revolving Underwriting Facilities (RUFs)- The NIF acts as an underwriter. Should the borrower be unable to sell all notes, the syndicate is obligated to purchase all the remaining notes from the borrower, essentially providing credit.Note issuance facilities are useful in reducing risk and costs for both the borrower and the lender. A RUF differs from a note issuance celerity (NIF) in that the underwriters provide loans instead of purchasing the outstanding notes that failed to sell. In either case, both RUF and NIF provide short- to medium-term credit in the Euro notes market. Commercial Paper -(CP) An unsecured, short-term debt instrument issued by a cor poration, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. One example is where the company issues sextet month dollar notes in the European Commercial Paper Market (ECP). Medium-term notes (MTN) Range in maturity from one to 10 years. By perspicacious that a note is medium term, investors have an idea of what its maturity will be when they compare its price to that of other fixed-income securities.All else being equal, the coupon rate on medium-term notes will be higher than those achieved on short-term notes. The use of CPs and MTNs is limited in that a minimum size of company and issue restricts it to large companies, multinationals and certain public sector bodies, and they are impelled by the demand of investors. Syndicated characters- The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds.Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding. deposits- Bank lending to companies is predominantly short term, although it is also now a worthful source of medium term finance. a)Bank loans- A short-term loan is a fixed amount of debt finance borrowed by a company from a bank, with repayment to be made in the near future, for example after one year.The company pays interest on the loan at either a fixed or a floating rate at regular intervals, for example quarterly. A short-term bank loan is less tractile than an overdraft, since the full amount of the loan must be borrowed over the loan period and the company t akes on the commitment to pay interest on this amount, whereas with an overdraft interest is only paid on the amount borrowed, not on the agreed overdraft limit. The interest rate for small companies on medium-term loans may either be at a fixed rate or at a margin above the banks base rate.For larger companies, the interest rate on medium-term loans may again be fixed for up to five years, but is usually at a margin above the London Inter-Bank Offered Rate (LIBOR) adjusted every three, sextette, nine or cardinal months in line with LIBOR movements. b)Overdraft- An overdraft is an agreement by a bank to allow a company to borrow up to a certain limit without the need for further discussion. The company will borrow as much or as little as it needs up to the overdraft limit and the bank will charge daily interest at a variable rate on the debt outstanding.The bank may also require security or collaterals protection against the risk of non-payment by the company. An overdraft is a fl exible source of finance in that a company only uses it when the need arises. However, an overdraft is technically repayable on demand, even though a bank is likely in practice to give warning of its intention to withdraw agreed overdraft facilities. Overdrafts are often the ideal solution for short term borrowing and are extensively used to overcome short term cash flow problems, such as for funding purchase of raw materials whilst waiting payment on goods produced.There is no penalty for repayment of an overdraft, irrelevant (usually) the early repayment of a medium-term loan. The bank, though, can demand the repayment of an overdraft atany time, and many businesses have been forced to cease trading because of the withdrawal of overdraft facilities by their bank. The advantages of an overdraft induction with the bank are that It provides flexibility. It is a relatively cheap from of finance. Interest is supercharged on the daily balance. The major drawback of an overdraft is th at the bank can withdraw the overdraft facility at short notice.Trade Credit- Trade credit is an agreement to take payment for goods and operate at a later date than that on which the goods and services are supplied to the consuming company. It is common to find one, devil or even three months credit being offered on commercial transactions and trade credit is a major source of short-term finance for most companies. The advantages of trade credit is that it is a relatively convenient, cheap and intimate way of securing short term finance and is available to companies of all sizes. work out-A financing method in which a business owner sells accounts receivable at a discount to a third-company funding source to raise capital. Factoring is the cash-management tool of choice for many companies. It is one of the most dear(predicate) forms of financing. The way it works is as follows Once a sale is made, the company invoices its customer and sends a copy of the invoice to the calcu late. The agent then pays the company a set proportion of the invoice value within a pre-arranged time typically, most factors offer 80-85% of an invoices value within 24 hours. The factor issues statements on the companys behalf and collects the payments.However, the company remains responsible for reimbursing the factor for bad debts, unless a non-recourse facility has been arranged. The company will receive the balance of the invoice (less charges) formerly the factor receives payment. The factor provides regular reports on the status of the companys sales raft Typical charges on the amount financed range from 1% to 4% over base rate, with interest calculated on a daily basis. Credit management and administration charges, including the maintenance of the sales ledger, depend on dollar volume, the volume and number of invoices. Typical fees range from 0. 0% to 3. 0% of annual turnover a company with 50 live customers, 1,000 invoices per year and ? 1 million turnover might pa y 1%. Advantage- Cash flow is maximized as cypher enables a company to raise up to 80% or more on outstanding invoices Using a factor can reduce the time and money spent on debt gathering since the factor will usually run the sales ledger for the company The factors own credit control system can be used to help assess the creditworthiness of new and existing customers Factoring can be an efficient way to minimize the cost and risk of doing business overseas Disadvantage- The factor usually takes over the maintenance of the sales ledger, and customers may prefer to deal with the company it is trading with rather than a factor Factoring may impose constraints on the way business is conducted for example, the factor will apply credit limits to individual customers and for non-recourse factoring, most factors will need to pre-approve customers, which may cause delays The client company might only indispensableness the finance arrangements and yet it might feel it is paying for coll ection services they do not really need Ending a factoring arrangement can be difficult where the only exit road is to repurchase the sales ledger or to switch factors and that could cause a sudden shortfall in working capital. Invoice Discounting- A method to draw loans from a companys outstanding invoices that does not require the company to relinquish administrative control of the invoices. An invoice discounting company will review the outstanding invoices on the companys ledger, and will determine the amount of loans that it will extend. Because the money is loaned, the company will be responsible for interest payments, as well as a fee to the invoice discounting company. The requirements are more stringent than for factoring and different invoice discounters will impose different requirements. Confidential invoice discounting ensures that customers do not know a company is using invoice discounting as the client company sends out invoices and statements as usual. However, the costs of this are greater since the discounter is carrying a greater breaker point of risk. Bills of Exchange- Bills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one party to pay a third party that was not involved in its creation. If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts. outside(a) capital marketsThere is an increasing planetaryization of capital markets, especially for the larger companies. Eurocurrency- up-to-dateness deposited by national governments or corporations in banks outside their home market. This applies to any currency and to banks in any country. For example, South Korean won deposited at a bank in South Africa, is considered Eurocurrency. The market generally offers high rates of interest, flexibility of maturities and a wide range of investment qualities in comparison with other capital markets. The unique feature is that the transactions in each currency take place outside the country from which that currency originates.On the short-term, inter-bank Eurocurrency market, transactions may take place between banks on an unsecured basis from overnight to five years duration. Most transactions are for six months or less and transaction of over ? 1m is common. Eurobonds- The Eurobond market is an international capital market which has developed alongside the Eurodollar market since the 1960s. Usually, a Eurobond is issued by an international syndicate and categorized according to the currency in which it is denominated. A Eurodollar bond that is denominated in U. S. dollars and issued in Japan by an Australian company would be an example of a Eurobond. The Australian company in this example could issue the Eurodollar bon d in any country other than the U. S. A bond issued in a currency other than the currency of the country or market in which it is issued. ) The following advantages are claimed for the Euromarkets in various currencies highly large sums can be raised or deposited. Money will often be cheaper than the domestic markets. Controls tend to be less restrictive. Some protection against exchange rate movements is offered, but here the user will require a high level of skill in selecting his or her alternatives. Any period of surplus or shortage from one day to five years can be accommodated. The markets offer a useful alternative to other sources of capital which the company Eurobonds Available- Straight fixed rate bondsThe majority of Eurobonds with a fixed coupon can be described thus. Interest is generally paid out once each year and is calculated using a 360-day year. Some older issues do pay half-annually. Equity related bonds These may take two forms Convertibleswhereby the bond hold er has the right (but not the obligation) to Convert the bond into ordinary shares at a pre-determined price. Eurobonds with warrantswhich are similar to convertible bonds in that warrants are machine-accessible to the Eurobond enabling the holder to purchase ordinary shares represented by the warrants at, or between, specified dates. The exercise price will be set in a similar fashion to that of convertible Eurobonds. Floating rate notes (FRNs)A note with a variable interest rate. The adjustments to the interest rate are usually made every six months and are tied to a certain money-market index. Also known as a floater. Borrowing in the Euromarkets- Borrowers in the Euromarkets include Companies needing dollars for investment in the USA. Unit trusts and investment trusts commit in foreign securities. The United States banks, which find that it is expedient to take up loans through the European market rather than to borrow in the USA. transnational companies wishing to invest in a particular country without wishing, or being able, to transfer capital from their base country. National governments and bodies associated with national and international agencies. Euro equity- An Initial Public Offer occurring simultaneously in two different countries. The companys shares are listed in various countries rather than where the company is based. Choice of Currency for Borrowing The factors affecting the choice of currency used for company borrowing include The ease and speed of raising finance, which is often easier outside the domestic markets. The size of the debt larger loans tend to be borrowed in the Euromarkets. The cost of issues small changes in interest rates can have a significant impact if the loan is large. Whether the currency is required immediately (including coverage in preventing exchange exposure) and in the long run. The security the company has available Euro borrowings are generally unsecured. Advantages of Raising Funds in International Markets- There are several advantages to the company in raising funds in international markets, including It is useful if the companys own capital market is too small, or too complex and/or regulated to raise the required finance quickly and easily. It improves the liquidity and reputation of the company. It may improve trade if the company trades in the country of the currency/capital market. It can help in preventing takeover bids.