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Medium sized businesses like XX chemical that wants to diversify into foreign markets and start their business activity there, need to invest huge amount of capital in foreign markets. These types of businesses are the main target customers of leading investment banks across the world (Ritter, 2003, p.278). Medium sized companies generally target the emerging markets for foreign direct investment. They prefer issuing rights for raising fund as rights issue is one of the most efficient to raise fund. Investment banks are recognized for expertise in this service. Rights issue refers to corporate invitation by the companies to the existing shareholders of the companies to buy more shares of the companies. The companies offer shareholders to purchase the new shares at a discounted market price than the current market price of the share of the company. Investment banks provide this service to the businesses like XX chemical and it is called underwriting service of investment banks (Chemmanur & Fulghieri, 1994, p.57). Underwriters are those who issue new share as initial public offering or secondary public offering of companies that need additional fund for strategic business activity. Banks disclosed the purpose of issuing rights and the shareholders analyze the potentiality of proposed investment plan or business activity by the company and decide to invest in the form of purchasing issued rights of the companies through investment banks. Investment banks provide opportunity to the shareholders of the companies to increase their financial exposure as he shareholders can purchase companies new shares at discounted price. The bank acts as financial agent between shareholders and company and providing financial benefits to both for some percentage of underwriting fees on the total share issued. The investment banks conduct necessary legal and regulatory activities for issuing right of the company on behalf of the company gets paid by the companies only but not from the shareholders for this financial service. The shareholders are allowed to trade issued shares after completion of initial or secondary public offering. Then the investment banks do not intervention on the traded shares of the company. Rights Investment banks prefer to provide underwriting services to the private limited companies than public limited companies. This means they prefer initial public offering than secondary equity offering of public limited companies. Rights issue is also carried out by self offering by the companies. Public limited companies issue rights in the form of public offering as rights are issued to the general public. Existing shareholders or the new potential investors can buy public offering from a public limited company. But a private limited company can issue rights in the form of issuing more shares to only the existing shareholders of the firm. From companies’ view point raising finance is through rights issue or equity issue is more preferable and also financial beneficial than debt issue. Risk retiring back to the raised capital is less in equity issue whereas the company is liable for paying the debt or credited amount to the creditors (NYU, 2012, p.68). Therefore, XX companies should raise finance in its need of finance through rights issue but not through lending from banks or other financial insinuations. Therefore, investment banks are more and more concentrating on this ...Show more


Report Table of Content Answer a) 3 Answer b) 5 Answer c) 10 References 11 Answer a) XX chemical is medium sized organization. Currently, the company needs raising additional finance as the director has been considering possibility of running projects in abroad…
Author : lbuckridge
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