Exchange Rate Risk and Capitalization 2.5

Companies seek the lowest average rate of financing costs to capitalize the business. Common sources of financing are as follows:

• Common stock equity
• Preferred stock equity
• Bond debt

Explain how the following risks may affect these 3 sources of financing in international capital markets. In addition, explain how these risks may influence a company's international weighted average cost of capital (WACC): each bullet should have 3 paragraphs explaining the risk for each of the 3 bullets abov

• Default risk
• Inflation
• Interest rate risk
• Stock and market volatility

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