Answer to Question #281334 in Finance for snow

Question #281334

3. When can there arise a conflict between owners’ and managements’ goals? How does wealth maximization goal take care of this conflict?

4. What is agency relationship? Give some examples of potential agency problems between shareholders and managers.

5. Discuss the factors that motivate managers to act in the shareholders interest?

6. What role should the financial manager play in a modern enterprise?

7. Define the scope of financial management.

8. “Investment decision depends on financial decision” – Do you agree with this statement? Why or why not?

9. Why financial assets exist in an economy? Explain different forms of funds in an economy.

10. Why are financial markets essential for healthy economy?

11. Distinguish between primary and secondary markets.

12. “There are three types of market efficiency - strong, semi-strong and weak” – Explain.

13. Write short notes on:

i) Organized market

ii) Odd lot

iii) Third market

Expert's answer

3) There might arise a conflict between owners' and managers goals once the ways for profit maximization adopted by every owner and manager is really investor, wherever the manager strictly works for increasing his own incentives. therefore profit maximization are going to be a legitimate resolution since its a serious goal towards money management.

4) Agency relationship could be a relationship of trust between 2 or a lot of persons wherever one person permit another person to act on his/her behalf. . The agent should act underneath the management and oversight of the principal and thus should adhere to his/her directions. Examples embrace observation price, bonding price and residual loss.

5)Compensating managers with fastened salaries

If managers of the firm can have fastened salaries then it'll not encourage the managers to act within the interest of shareholders as their compensation is freelance of firm and stock performance.

6)Financial manager takes care of all vital money functions of a company. The roles are inclusive of allocation of funds, raising of funds, understanding capital markets and profit designing.

7)The scope of economic market is inclusive of estimation of economic needs, choosing sources of finances, correct money management, choosing investment patterns and choosing applicable capital structures.

8) Yes, this can be as a result of availableness of capital is one major basics towards putting in place of any investment.

9) Money assets exists within the economy because of its eligibility of generating surplus incomes inclusive of cash, stocks and bonds. Funds among the economy embrace fastened financial gain funds, securities industry funds, equity funds, balanced funds, index funds,speciality fund and fund of funds

10)Financial markets are a great deal essential for the event of any economy. As there are smart money product out there in market then individuals can deposit cash or lend cash a lot of often that results in higher cash circulation and better economic activity are going to be there that results in economic process. higher money markets attracts a lot of investments from abroad and which is able to produce a lot of jobs, higher productivity that successively will increase the economic process of a rustic

11). Primary market principally deals with issuance securities for the terribly initial time and investors place their cash into these securities. Issue may be stocks and bonds. initial offering (Initial Public Offer) is associate example of primary market. Primary market is joined with fund raising activities. Whereas Secondary Market could be a market wherever day to day commerce of those securities happen. Securities are listed with stock exchanges, traders or investors exchange these securities to avail short term edges.

12)The weak kind see today’s stock costs mirror all the info of past costs which no variety of technical analysis may be effectively utilized to help investors in creating commerce selections.

The semi-strong kind potency theory follows the idea that as a result of all data that's public is employed within the calculation of a stock's current value, investors cannot utilize either technical or basic analysis to realize higher returns within the market.

The strong kind version of the economical market hypothesis states that every one data—both the knowledge out there to the general public and any information not publicly known—is utterly accounted for in current stock costs, associated there's no variety of data that may offer an capitalist a plus on the market.


i)Organized market; It refers to a line of traders underneath operation of recognized rules of shopping for and marketing of various or same commodities.

ii)Odd lot; It refers to something but the quality one hundred shares for stocks

iii) Third market; Its trade between non-exchange member, broker-dealers and institutional investors of enlisted stock exchange.

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