700–800 words Exchange Rate Risk and Capitalization

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 and the impact overall on weighted average cost of capital (WACC):

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