Q.Discuss the factors that a business should consider while choosing a source of international finance.

Structure the answer around the five main factors -- cost, currency risk, repayment terms, control, and regulatory approval -- explaining briefly why each matters. …

Choosing among the available sources of international finance -- FDI, FPI, ECBs, GDRs/ADRs, or international bonds -- requires a business to weigh several factors carefully, since no single source suits every situation.

Cost is usually the first consideration: the interest rate or expected return demanded by lenders or investors, along with any extra cost that could arise if the relevant foreign currency moves unfavourably before repayment or before returns are repatriated. A source that looks cheap on paper can become expensive if currency movements are not accounted for.

Currency-conversion risk is closely linked to cost. Any source that creates a foreign-currency obligation -- such as an ECB or an international bond -- exposes the business to the risk that an adverse exchange-rate movement will make repayment more expensive once converted back into the domestic currency, even if the original interest rate was attractive.

Repayment terms and tenure must also be matched to the business's actual need: whether the funds are available for a short or long period, whether repayment is a single lump sum or spread across instalments, and whether these terms suit the timeline of the project the funds are meant to finance.

The degree of control the business is prepared to give up is a major, often decisive, factor. Raising funds through FDI-type routes -- bringing in a foreign partner with a management stake, or selling a controlling shareholding -- means ceding a real say in how the business is run. A business that wants capital without inviting a partner into management would instead prefer FPI, ECBs, GDRs/ADRs, or bonds, none of which require giving up management control. …

Students often discuss only 'cost' and forget to mention control and regulatory approval, both of which examiners specifically expect in a full discussion of this …