In order to avoid exchange rate risks, the company will make all transactions in one standard currency that is U.S. dollars. Moreover, in order to avoid exchange rate risks AKJRT Inc. will use hedging approach, while netting approach will also be used where necessary. Hedging approach will be more pragmatic for the company as the company will be taking financial loans from international financial institutions (IXGW, 2011).
Generation of Financial Resources
Given the highly capital intensive nature of the business, generation of financial resources remains a major concern for AJKRT Inc. Since the retained profits of the company are expected to remain relatively lower in the initial years, the company's retained profit cannot be considered dependable enough to finance the entire business all by itself. In order to finance its capital intensive structure, the business will have to depend on diverse sources of finance. The three main sources of finances are as follows:
Finance generated through share capital
Loan Capital which primarily includes bank loans
Government Assistance
As stated earlier, AKJRT Inc. is a highly capital intensive venture. While retained profit alone cannot be depended upon, depending too much on the loan capital can be negative for the company as well due to the increase interest expenditure. Therefore the most viable option is the generation of finance through issue of shares. The company can sell its stocks in the...
However, this source of finance is only dependable if the firm manages to attract enough investments.
AKJRT Inc. must also consider seeking financial assistance from the government. This is because the business will not only be supporting the government objectives such as reduced dependence on non-renewable fossil fuels, and providing cheap air travel to passengers, but will also support the employment levels and economic growth in the country. The contribution to the economy that AKJRT Inc. can potentially make can win the company government support in forms of subsidies and grants. The company can also ask for certain tax exemptions (Sofat & Hiro, 2008). This will leave the company with a greater proportion of finance to invest.
AKJRT Inc. can seek loans from national and international financial institutions. The potential domestic financial institution is Mitsubishi UFJ Financial Group which has a high credibility and performance. International loans can be acquired from financial institutions such as Barclays.
Appendix
References
IXGW (2011). How do foreign trade avoid exchange rate risk. Retrieved from http://www.ixgw.com/2011/02/how-do-foreign-trade-to-avoid-exchange-rate-risk/
Gowthrope, C. (2005). Business Account and Finance for non-specialists. UK: Thomson.
Sofat, R. & Hiro, P. (2008) Basic Accounting. India: Prentice Hall.
