fundamentals of corporate finance Exam Questions with Correct Answers| New Update with
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what is the natural financial objective of a business? what are they aiming to maximise?
They are aiming to maximise current market value
what does an agency problem refer to? This is when managers are hired as agents of the
shareholders and are more likely to shy away from risky opportunities as they are more worried
about their job than potential profits
agency problems arise when managers are hired as agents for the shareholders and are less
likely to make risky decisions. How can agency problems be mitigated? Through legal and
regulatory standards, compensation plans that tie the fortunes of the company to the fortunes
of the managers, monitoring by lenders stock market analysts and investors, and ultimately the
threat that poorly performing managers will be fired
what is the difference between banks and investment banks? banks:
lend money, helping companies manage their risk
investment banks
help companies to buy and sell their securities to investors. They also have large corporate
finance departments which assist firms in M&A
what is a financial market a financial market is a market where securities are issued and
traded.
what is a security on the financial market this is a traded financial asset (eg a share or stock)
when companies need to raise money, they can issue shares on an organised exchange. When
theyfirst do this - what is it called? IPO
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what is the natural financial objective of a business? what are they aiming to maximise?
They are aiming to maximise current market value
what does an agency problem refer to? This is when managers are hired as agents of the
shareholders and are more likely to shy away from risky opportunities as they are more worried
about their job than potential profits
agency problems arise when managers are hired as agents for the shareholders and are less
likely to make risky decisions. How can agency problems be mitigated? Through legal and
regulatory standards, compensation plans that tie the fortunes of the company to the fortunes
of the managers, monitoring by lenders stock market analysts and investors, and ultimately the
threat that poorly performing managers will be fired
what is the difference between banks and investment banks? banks:
lend money, helping companies manage their risk
investment banks
help companies to buy and sell their securities to investors. They also have large corporate
finance departments which assist firms in M&A
what is a financial market a financial market is a market where securities are issued and
traded.
what is a security on the financial market this is a traded financial asset (eg a share or stock)
when companies need to raise money, they can issue shares on an organised exchange. When
theyfirst do this - what is it called? IPO
