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- This topic has 1 reply, 2 voices, and was last updated 6 years ago by John Moffat.
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- June 6, 2018 at 4:36 pm #457125
1. one benefit of islamic finance i the access to muslim funds. Does that mean if a company obtains islamic finance more funds will be available ?
Moreover, that means there are two finance that a company can obtain generally (in p4 syllabus), conventional finance and islamic finance and if company uses islamic finance, more funds can be obtained ?2. financing options for international investment, it can be done using own free cashflow, finance raised in the parent entity’s home country, subsidiary’s country or completely separate country.
in my textbook, it says
“if borrowing is denominated in parent’s domestic currency, this will in no way reduce foreign exchange risk through matching. However, if the funds are denominated in the subsidiary’s currency, the foreign currency borrowing can be designated as a hedge of the net investment in the foreign subsidiary for hedge accounting purposes to reduce the impact of fluctuations in value due to currency movements”So my questions is
why we can’t reduce foreign exchange risk using matching if borrowing is denominated in parent’s domestic currency while we can reduce the risk if the funds are denominated in the subsidiary’s currency ??3. what is it mean by syndicated credits and multiple option facilities ? after i read through the notes and textbook, i still have some difficulties understanding those 2…
thank you John ! !
June 6, 2018 at 4:49 pm #4571361 No – it won’t make more funds available. It is mostly companies that follow Islamic law that will choose to use Islamic finance. It is not that companies will look at both and choose one against the other.
2. If we borrow in the same currency as that used by the foreign subsidiary, then we will be paying interest in that currency. Therefore as exchange rates go up and down, the income from the subsidiary (when converted) will go up and down, but so too will be interest expense (when converted) go up and down. Therefore to an extent the risk is cancelled due to the matching.
I actually use this as an example when explaining matching in my free lectures.3. I really wouldn’t bother about either of these (at least as you have typed them)- if either are mentioned (which is unlikely) it will not be for many marks. If you really do want more then try searching on Google 🙂
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