International Business Finance

International business finance deals with financing businesses that operate across the geographical frontiers. There are different ways of financing such businesses.
Capital for the international businesses are raised by the following means:

Stock Market

For businesses that operate across nations capital is raised by the issue and the distribution of shares. The total value of the shares issued by a corporation is known as the market capitalization. The following types of stocks are used.

1. Common Stock : This is the most common form of stocks. The holders of common stock have the power to vote in important corporate decisions.
2. Preferred Stock : The holders of the preferred stock has an additional advantage, in that they enjoy a higher priority in the distribution of dividends an assets. The disadvantage is that the preferred stock holders do not enjoy any voting right.
3. Dual Class Stock : Such stocks are issued for a single company.
4. Treasury stock : The stocks that are brought back from the public are the treasury stocks.

Derivative Market

International business finance is also obtained through the derivative market. Derivatives are financial claims whose value is derived from the value of the underlying asset. There are two kinds of derivatives.

1. Futures : The futures contract are standardized contracts which is traded on a futures exchange. It is designed to buy or sell an underlying asset at a specific date and time. The buyer or seller of the futures contract is obliged to fulfill the terms of the contract.
2. Options : the options contract is almost the same as the futures contract with the exception that the contract holder has the choice to exercise the contract. There are two types of contracts- the call option and the put option. Options are traded through a clearing house. The buyer of the option is said to take the long position while the seller is considered to take the short position.

Investment banking : this is yet another method of international business finance.

The role of the investment bank is to issue and sell securities in the primary market on behalf of the international companies. They raise capital for the international corporations through debt and equity.

Hedge Funds : Hedge funds are basically investment funds which charge a performance fee. Hedge funds are different from the mutual funds, pension funds and insurance companies. Hedge funds can deal with the futures, swaps and other derivative markets.

Private Equity : The private equity is any equity investment that cannot be traded in the public markets. There are various categories of private equity investment. They are:

1. Leveraged Buyout : Leveraged Buyout occur when a financial sponsor has control over the company's majority equity through the use of debt.
2. Venture Capital: this type of private equity capital is given by the professionals, institutionally backed outside investors to the new and nascent businesses.
3. Growth Capital: The money that is borrowed under the Growth Capital is used for any corporate purpose.
4. Angel investing : this is the method of investment by a very financially well off individual in lieu of ownership equity.
5. Mezzanine capital: This is a wide term meant to cover unsecured, high yield, subordinated and preferred stock.

Commercial Banks : Commercial Banks also provide international business finance with attractive interest rates.

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