Advice to a CFO: Navigating the U.S. Financial Market for Expansion - Essay Sample

Introduction

For the exporter such as Jangdambay exporter to go public, and expand in the USA, The CFO needs to be given several financial guidance on the U.S it is going to venture into. The advice provided will be very useful in their process of raising funds, and the issuance of equity.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

The first advice to the CFO is on the components of a financial market and its relevance to its market. The financial market is where bonds, security, currencies, equities, and derivatives are being traded. It has transparent pricing and also regulations related to trading, fees, and costs. It contains various components such as capital markets; it highly involves people trading in the financial securities (Di Maggio, Kermani &Song,2017). Secondary and primary markets are also involved. Selling of security can be used by the company to raise money when the bond and stock sale are in the name of the company.

The money market is also a component of financial markets. Many people are involved as it is a means of borrowing and lending money over a short period. It is highly known of high liquidity and short maturities trade. Another financial market component is the spot or cash market. Here goods are sold in cash and they are immediately delivered (Jagdambe,2016). This type of market is not suitable for inexperienced traders. Other components include secondary and primary markets, interbank and forex markets and derivatives markets. The financial market is very important in any market forces.

An analysis of Jagdambay exports reveals that it is a company committed to the quality of their products to the expected customers. Their method is based on the provision of materials based on the needs of the market and the constant changes in the needs of the customers. The penetration of the US financial markets requires that there is an independent quality assurance team ready to take on the arising issues when the company is undergoing transition. The process will be costly but profitable in the end.

The company can consider primary markets in several cases where it decides to issue additional common stock. The primary market is the market where the company can create securities, it is most common in companies that deal with stocks and bonds that are new and being introduced to the public for the first time. This can be the best option market for Jagndambay export if it has to introduce its stock. It will give the investors a chance to purchase securities that had already performed an underwriting for stock before(Eickmeier.etal,2017). If The Company gets first underwriters, it will enable investors to contribute to the company by purchasing the stock. It will raise the company's equity capital, which is comprised of money created from the selling of the stock in a primary market.

This is the first opportunity that investors have to contribute capital to a company through the purchase of its stock. A company's equity capital is comprised of the funds generated by the sale of stock on the primary market. It should be noted that other types of primary markets can offer preferential allotment and even private placement for the stock issued. This gives the company the right to make a direct sale to the investor such as banks without making the stock public.

Jagdambay Company can still choose the option of a primary market in its sales if an underwriter is willing to purchase 1,000 of its common stock. Export should not choose secondary markets for several reasons (Geromichalos.etal 2016). This type of market also referred to as the stock market in the US financial markets is wide and very diverse. It includes the stock exchanges and encompasses many other forms of trade around the globe. This type of trade is unique in that all the investors are trading among themselves. Jagdambay needs clients at a ground level and this can be affected by investors' trade-offs(Hanley,2017). In this market, the investors are free to trade in securities that had earlier been used, even when the company is not involved. An example is if Jagdambay export, the stock is bought by a person, then the person is only dealing with an investor who owns a share in Jagdambay. This type of trade does not directly involve Jagdambay.

A bond is always expected to pay owners, the full amount of money upon maturity, even if it takes longer. In debt markets, people holding the bonds can sell the bonds on the secondary markets, for-profits in cases of dropped interest rates. This is a disadvantage to the company as it profits only the investors.

There are three primary ways in which capital can be transferred between the savers and borrowers in the company, while each of the three methods has an advantage, they got disadvantages too and needs keen assessment before choosing them. The first method is the Investment banking house, where the company will start new investment security to get financing and raise the capital(Pilbeam,2018). It is a sale of securities to an investment baking housing to enable a company to have capital. It has an advantage as it is the easiest and the quickest method to use. It has a disadvantage in that; the investment can buy the bonds using a lower price than the market one and the expected price. The second method is the use of financial intermediaries. These intermediaries are institutions that are found between the savers and the borrowers, they are banks, credit unions, pensions, and even the insurance companies. It is an indirect transfer involving the financial intermediaries collecting the money, the savers wish to invest and selling it as loans to the buyers. The disadvantage of this method is that the payment of full profit to the savers is not guaranteed since cases of defaulting buyers are rampant. It is, however, safe and secures making it an option for several people. The third method is by the use of trading methods that allow the company to sell its stock, the disadvantage of this method is the competitive nature of this method which results in the loss of investors.

It is important also for the CFO to understand the types of ways the company can trade the securities, either through, physical exchange or over -the- counter -trade(Pollin, Heutz &Herndon,2018). The over the counter trade is commonly followed by companies which are not in the formal list of exchange. They don't have a central exchange like the ones traded physically; they are instead traded through a dealer network. The company should choose this method as it promotes equality and the need of the investors. With this method, the company will raise its capital by selling the stock. There are several types of securities traded by the over counter trading

The advantage of this method is that its equity trade applies to all companies both large and small companies, it is already being applied in large companies like Nestle SA, Roche Holding, and others(Sumner,2017). The advantages of this method are that it provides access to security on standard exchanges like bonds. There are fewer regulations as it allows all companies regardless of their sizes. They can be in the listing or not. The trade is fair and speculative investors can have the best returns. The disadvantage of this trade, however, is that it has less liquidity since it has a low volume which leads to several delays in making the trades final.

Conclusion

In conclusion, the details of the US financial system are important to the management of the company as it plans to venture out in the US. The understanding of money as a medium of transfer and its liquid forms. The financial instruments, entitlements to pay for services offered and tradable financial instruments like stocks and bonds. The information will enable the chief financial officer to plan for the company. Financial Institutions are firms that connect borrowers and lenders, provide savers and borrowers access to financial instruments & markets. There are two types of Financial Markets - the primary market and the secondary market.

References

Di Maggio, M., Kermani, A., & Song, Z. (2017). The value of trading relations in turbulent times. Journal of Financial Economics, 124(2), 266-284.

Eickmeier, S., Metiu, N., & Prieto, E. (2017). Monetary policy effectiveness in times of Financial Market Volatility. Deutsche Bundesbank, Research Brief 11th edn., March. Available at: http://www. Bundesbank. de/Redaktion/EN/Kurzmeldungen/Research_brief/2017_11_monetary_policy_ financial_market. HTML.

Geromichalos, A., Lee, J., Lee, S., & Oikawa, K. (2016). Over-the-counter trade and the value of assets as collateral. Economic Theory, 62(3), 443-475.

Hanley, K. W. (2017). The economics of primary markets. Available at SSRN 3046256.

Jagdambe, S. (2016). Analysis of export competitiveness of Indian agricultural products with ASEAN countries. Institute for Social and Economic Change.

Pilbeam, K. (2018). Finance & financial markets. Macmillan International Higher Education.

Pollin, R., Heintz, J., & Herndon, T. (2018). The revenue potential of a financial transaction tax for US financial markets. International Review of Applied Economics, 32(6), 772-806.

Sumner, S. (2017). Exchange rate crises and US financial markets during the 1930s. In Exchange Rates and Economic Policy in the 20th Century (pp. 85-116). Routledge.