Answer to Question #242231 in Marketing for Kajal

Question

a. Manoj is an active trader and has good understanding about the various instruments 

traded in the Indian Financial Markets. He is now curious about trading of own 

currency in exchange for an equivalent amount of another currency. You are therefore 

required to help Manoj understand the Meaning and Role of Foreign Exchange Market 

along with the Participants involved in such a market.

 

b. Reshma has completed her studies and is now starting a new project for which, she 

needs a huge amount of capital. One of her friends suggested her to approach Venture 

Capitalists for her capital requirements. 

In the light of the above case, explain to Reshma the concept of Venture Capital and the 

Stages involved in Venture Capital Financing.

Answer 1

a) Foreign exchange market is an institution for the exchange of one country's currency with that of another country. Foreign exchange markets are actually made up of many different markets, because the trade between individual currencies say, the euro and the U.S. dollar each constitutes a market.

Participants in Foreign exchange market include commercial banks, Foreign exchange brokers, Central bank, multi-national corporations (MNCs) and Individuals and Small businesses.

b) Stages in venture capital financing

Stage 1: Seed capital. At this point, the leaders of a startup may not have any commercially available product yet and are instead most likely focused on convincing investors why their ideas are worthy of VC support. Seed funding rounds are typically small and are channeled toward research and development of an initial product. The money may also be used for conducting market research or expanding the team.

Stage 2: Startup capital. With initial market analysis conducted and business plans in place, companies look to begin marketing and advertising the product and acquiring customers. Organizations at this stage likely have at least a sample product available. VC funding may be diverted to acquiring more management personnel, fine-tuning the product/service or conducting additional research.

Stage 3: First stage. Funding received at this stage will often go toward manufacturing and production facilities, sales and more marketing.

Stage 4: Expansion stage. VC funding serves as more fuel for the fire, enabling expansion to additional markets (e.g., other cities or countries) and diversification and differentiation of product lines.

Stage 5: Bridge stage. Funds received here can be used for activities such as: Mergers and acquisitions, Price reductions/other measures to drive out competitors, and Financing the steps toward an initial public offering. If all goes well, investors may sell their shares and end their engagement with the company, having made a healthy return. Many tech IPOs – think Facebook, Twitter and Yelp – were only possible after years of VC funding that fueled user and revenue growth.