18- FM Environment

Question 1

what is a reverse yield gap?

Answer 1

reverse yield gap is where the yield on debt is greater than that of equity

Question 2

What are the common roles of the treasury function within a firm?

Answer 2

Short term management of resources
Risk management
Long term maximisation of shareholder wealth

Question 3

What are examples of market failure where regulation may be a solution?

Answer 3

Imperfect competition
Social costs or externalities
Imperfect information

Question 4

how can imperfect competition be addressed

Answer 4

Imperfect competition can be addressed by a competition regulator to prevent consumers being taken advantage of, for instance by a firm with monopoly power

Question 5

how can social costs be addressed

Answer 5

Social costs or externalities can be regulated against by imposing fines on firms that create them, for instance where a factory emits too many greenhouse gas

Question 6

how can imperfect information be addressed

Answer 6

imperfect information can be legally addressed by ensuring full disclosure, for instance on the launch of a bid for stock market flotation, so as not to disadvantage purchasers of shares

Question 7

What should the audit committee consist of

Answer 7

Non executive directors

Question 8

In order to eliminate a balance of payments deficit, the government may?

Answer 8

A government may intervene to weaken its country’s exchange rate in order to eliminate a balance of payments deficit