Financing Of Financing And Financing

Firstly, we have to look at the sources of finance. There are two primary sources; internal sources and external source.

This paper will describe the different types of funding available to begin a business. These include borrowing money, selling stock, and technology licensing. This paper will discuss the meaning, function and importance of the stock market, investment banking, financial management, and risk financing. This paper continues with a scenario with a future business owner and the decision making of how to fund his business. This paper concludes with a decision on what type of funding he should chose for his business and the advantages and disadvantages behind that decision.

How should PDVSA finance the development of the Orinoco Basin? What are the costs and benefits of using project finance instead of traditional internal debt finance?

There are two general forms of financing debt and equity. There are advantages and disadvantages to each, so determining how the company will be financed needs to take that information into account. Debt creates an obligation it must be paid back through the company's cash flows. This in turn increases the riskiness of the company to the owners and it also reduces the opportunities that the company might have for expansion. Also, debt is hard to acquire for a new business. Banks are unlikely to lend to an unproven business, and they certainly will not lend a substantial amount to such a business. Credit cards can be maxed out to start the business, but the high cost of cards makes this a very high risk option.

The way the business is funded for its operation and business plans is a crucial factor for the long-term performance of the business. Two most fundamental financing methods include debt and equity financing which will be discussed and evaluated. Equity financing is a method of raising fund from investors with the promise of a share in business ownership. Debt financing is obtaining a loan from external party separate from the business for example the bank and usually involves incurring an interest payment. Advantages of debt financing include protection of ownership and tax reduction. Lenders have no claim on business ownership and debt financing ensure retained ownership. Another benefit includes tax reduction, the repayment of debt is considered as an expense for the business leading to a reduction in tax. Disadvantages include the repayment and lender claim on business asset. For debt financing there is a fixed repayment date, while equity financing does not require repayment. Even when the company is making a loss, the business needs to make debt repayment regularly for example in a monthly basis to lender such as bank. Usually when business default its debt, the lender can claim its assets as collateral. Interest rate is an integral part of debt financing. Due to inflation, the value of the same amount of money diminish overtime as a result, there is an interest rate for all loan. Long-term loan is comparatively more costly than

The Capital market in any country is one of the major pillars of long-term economic growth and development. The market serves a broad range of clientele, including different levels of government, corporate bodies and individuals within and outside the country. Capital formation entails accumulated savings out of the current incomes of either organization or individual. It is investment in fixed assets which in part is financed with monies raised through the capital market (Al-Faki, 2006). The Capital market has been one of the major means through which foreign funds are injected into most economies and the tendency towards a global economy is more visible there than anywhere else. It is therefore, quite valid to state that the growth of the capital market has become one of the barometers for measuring the overall economic growth of a nation (Emenuga, 1998).

In the past two decades, economic analysts and policy makers have recognized that the financial system can significantly contribute to economic growth. Observing the changes that have taken place, a result has arisen that a liberalized financial sector operating in a competitive, open environment with market-based supervision based on international norms, is the best contribution to economic development. The new market-based paradigm for the design of financial systems contrasts with earlier thinking about the appropriate role for official intervention in the financial system. In the past, financial institutions, especially banks, were considered "special" entities in which it was appropriate for governments to intervene regularly in detecting a wide range of economic and social objectives . While, in earlier times, the financial sector differentiated strongly among countries and influenced by national rules .

An efficient banking system and well functioning capital market, capable of mobilizing the savings &channeling them to productive uses, are essential if the efforts at economic restructuring are to succeed. While both the banking systems and capital markets have shown impressive growth in the volume of operations. Unless major reforms were initiated it was difficult to

In addition to inflow of foreign capital, the government faced allocation of capital with using its financial system. The loan decisions of commercial banks were heavily influenced by political interference. Loan decisions in Korea mostly were affected by political interference rather than bank themselves until recent time. In the economic development, the government’s creation of

Labeled as one of the most devastating economic events in the region, the Asian currency crisis of 1997, that began as a localized currency crisis in Thailand that summer and rolled east, led to Korea suffering nearly a 7% decline in GDP (real GDP), along with a 6% increase in unemployment levels in 1998. (Jangryoul Kim, 2012) Despite the fact the crises engulfed the entire Asian region, this paper analyses its impact on Korea. Despite Korea being one of the world’s poorest countries in the 1950s with a per capita income of under $100 (Sharma, 2003), following separation from the North, South Korea (referred to as Korea throughout this paper) enjoyed lasting economic expansion from the 60s all the way up to 1997.

In the 1980s and 1990s, the Korean government transitioned from its authoritarian militant rule to a democratic government, and its previous industrial policy began to fall apart, eventually culminating in a financial crisis from 1997-1998. This crisis helped change the attitudes and ideas of the Korean economy, allowing financial institutions to become more competitive and transparent.

Ivanovic, Sasa, Suzana Baresa, and Sinisa Bogdan. 2011. Factoring: Alternative model of financing. UTMS Journal of Economics 2 (2): 189–206.

The theme is about the analysis of the effects of different sources of capital on investment decisions in Astra Holdings Limited. An examination was carried out on specific components of debt, equity and working capital and the reasons for preferring one financing method to the other. Furthermore, the balance sheet movements of compositions of certain elements relating to debt, equity and to a lesser extent working capital were analysed over a period of three years. The main target of this scrutiny was to expose the effects of the sources of finance when utilised on an investment of the organisation’s choice.

Neighbor South Korea dealt with economic uncertainty leading up to the 1997 currency crisis which plagued Thailand. South Korean chaebols or conglomerates were recording record debt levels between 1996 and 1997. Banking policies enacted by President, or Dictator, Park during the late 80’s constructed an economic environment whereby loans to chaebols were issued on the basis of company need, as opposed to individual judgment on part of the loan issuing authority. In more succinct terms, nationalized banks issues loans to chaebols without verifying whether the company could pay the loan bank, or whether the interest rates were reasonable, or even whether the company’s venture had enough collateral to back it up. In essence, chaebols were tasked with repaying loans that they might not have the appropriate level of capital for. Therefore, on the eve of the Asian Financial Crisis, chaebols such as Hanbo Steel, and others, were closing their doors due to debt burdens incurred without a proper foundation for capital generation.

The role of financial intermediation in economic growth has got wider discussion as entrepreneurship, operations of which is majorly dependent on external financing, proved to be an effective driver of economic development. A whole century has past since the first theory of finance-entrepreneurship-growth nexus was proposed, but economists still did not achieve consensus neither regarding its existence nor its causality direction. Over time financial markets emerges to the extent that may negatively affect on growth, as well as diverse sources of financing appeared to be effective.