International financial services - Essay Example

Intex is a third-party cash-flow projection technique that can provide accurate data on existing collateral investments and compute cash flow projection faster and easily. This enables the stock exchange to get the information they need faster and accurately for better decision making. Second reason is high frequency transactions in secondary market. This is because of two reasons. As the transaction frequency increases, the stock exchange has less time and fewer resources devoted to the primary markets.

Secondly, high frequency transactions generate higher income to stock exchanges. Therefore, they will naturally put resources in areas that give them more money. Impact to the United Kingdom companies The first impact to the UK companies is reduction in their capital base. As the stock exchange concentrates in the secondary market, the primary markets experience shortage of skilled personnel who advises them on best ways of raising maximum capital for their companies. As a result, most companies may opt for other sources of capital because it is extremely hard to raise capital where there is no adequate help.

Secondly, most companies take longer time to raise their capital from primary markets. This is because as the stock exchange gets busy with the secondary markets, they will be long queues of companies seeking help. As a result, there will be delays in getting assistance. 2. A company has the following capital structure, and all securities issued have the same nominal price of ?4.00. 400,000 5% Debenture Stock @ ?4.00 600,000 2? Preference Stock @ ?4.00 1,000,000 Ordinary Shares @ ?4.00 (a) the value of the gearing ratio and the significance of this ratio to potential investors Stock Quantity Price /unit in ?

Amount capital in ? Debenture 400,000 4 1600000 Preference 600,000 4 2400000 Ordinary Shares 1,000,000 4 4000000 Total Fixed Capital 8000000 Gearing ratio indicates the proportion of debts used to finance assets in the company. The higher the gearing ratio, the riskier is the company. This is because most of the money used is borrowed from other sources other than ordinary shares. (b) When Directors decided to distribute only forty percent of the profit (?800,000), the dividend declared on ordinary shares is given below. =?320,000  The return on investment   (c) a.

The price/earnings ratio  (c) b. The concept of price/earnings ratio and the significance to future Price/earning ratio measure the value of the stock. This is because it establishes the relationship between the stock price and the company’s earnings. When price/earning ratio is high in a given stock, the forecast earning growth is also high. It is a valuable ratio because investors can use to compare values of stock of different companies. Investors normally prefer stocks with higher price/earning ratio because it indicates higher returns. 3. The concept of Right Issues as well as advantages and disadvantages to the stockholders Rights issue refers to an alternative means of raising capital whereby, a company issues additional shares or stocks to already existing shareholders in proportion to their shareholding in exchange for cash (Banerjee, 1990).

For example, a company may offer rights issue on the basis of one rights issue for every six held by the shareholders. A company does this via seasoned equity offering or primary offering market at a premium or discount. The procedure for rights issue is easy. Once the issues