BEC Q6

Question 1

What is the impact if a competitor is undergoing liquidation due to embezzlement

Answer 1

• No effect on the economy as a whole but it would increase your remittal market sales

It would allow you to increase your market share

Question 2

What preceded most recessions during the second half of the twentieth century?

Answer 2

During the second half of the twentieth century, most recessions followed efforts by the Federal Reserve to forestall current or expected increases in inflation rates through higher interest rates.

Question 3

What do New Keynesians believe

Answer 3

• favor a more active role for government
• both in monetary and fiscal policy
• worry less about excessively loose monetary policy

Question 4

What do Monetarists believe

Answer 4

• They argue for stable monetary growth
• the recognize that prices and wages may fail to be flexible
• to achieve stable monetary growth - interest rates will be permitted to rise during expansions an fall during recessions

Question 5

How does decreasing target interest rates reduce inflationary pressure

Answer 5

Decreasing target interest rates will discourage saving, since there will be a lower return, and encourage borrowing, increasing the amount of money circulating.

Question 6

Hoe does increasing margin requirement s reduce inflationary pressure

Answer 6

Increasing margin requirements, for example, reduces the amount of borrowed funds an investor can use to buy securities, thereby reducing the funds the investor has available for investing and spending.

Question 7

How does decreasing reserve requirements reduce inflationary pressure

Answer 7

Decreasing reserve requirements increases the amount a financial institution may lend without increasing its assets, increasing the money and credit supply and increasing prices.

Question 8

Okuns Law

Answer 8

Okun’s law provides a general rule of thumb linking changes in economic growth and unemployment. Okun’s law does not have precise predictive power nor does the law focus on interest rates or inflation.

Question 9

Locate factories in countries whose currencies are likely to appreciate and sell products in countries whose currencies are likely to depreciate. What is the effect on currency risk

Answer 9

Increases currency risk

Having costs and revenues in countries with different currencies increases, rather than decreases, currency risk since the entity will be affected by the fluctuations of both, not simply one currency.

Question 10

What are some techniques to manage the risk of changes in exchange rates

Answer 10

purchase currency related derivative

match local revenues with local costs ( labor)

Finance operations in each market with loans obtained in the local currency

Question 11

What is involved in the monitoring of Internal Control

Answer 11

1 - establish a baseline or foundation for monitoring by seeing how controls are designed and what they are supposed to accomplish

2 - design procedures to monitor the control - see if they have been put in operation, if they have been followed, and if they are effective

3- The results are then assessed to see if action need to to be taken - enhancing existing, changing existing , or enforcing existing

4 - develop a new baseline of the revised system

Question 12

Monitoring internal control for changes process

Answer 12

Control Baseline - understanding of the baseline and design of the system,

Change Identification -
ongoing and separate evaluations are used to identify and address changes in the effectiveness of I/C - basically you are identifying areas that need to be changed

Change Management - making decisions as to the extent and nature of changes

Control revalidation/Update - have an understanding of the revised system and develop e new baseline

Question 13

What must you do to have to ensure the validity of a contract between a corporation and a director of a corporation

Answer 13

• The director must disclose the contract to independent members of the board and refrain from voting on the approval of the contract
• Thi si sif the board member was given an opportunity personally. He must run it by the board first - so that they have the right of first refusal - if they pass then he can go ahead and take the opportunity

Question 14

Tone at the top

Answer 14

• The most influential internal control component
• It promotes ethical behaviors and attitudes
• It is leading by example
• It creates compliance-supporting culture by showing the org is aware and complies with regulations
• provides guidance for navigating gray areas
• demonstrating a commitment to doing what is right in addition to what is allowed
• promotes a willingness to seek assistance and report problems in a timely manner - open door policy

Question 15

Dodd Frank does what

Answer 15

provides monetary incentives for whistleblowing

Question 16

What are the COSO 4 responses to risk

Answer 16

Avoidance - avoid the risk all together - no longer perform audits

Sharing - share the risk with another party - like getting additional insurance ( sharing the risk ) or performing an audit with another firm

Acceptance - take no action to reduce the risk or mitigate its affect - continue to perform the audit without making changes

Reduction - actively take action to reduce risk response or mitigating

Question 17

What is prospect theory

Answer 17

Thi sis a model that examines how decision-makers chose between alternatives that involve risk

Question 18

What is Title IX of Dodd Frank

Answer 18

Stock Holders vote to approve executive compensation every 3 years

Vote every 6 years to determine if voting to approve compensation every 3 years is frequent enough

Also authorizes them to vote to disapprove of a golden parachute - though the vote is not binding

Also has clawback provision to recover executive compensation when there is an accounting restatement

Must say why the CEO and the chairmen are the same or different people

If your company is bigger than 50billion in assets you must defer at least 50% of annual incentive-based compensation for at least 3 years

Question 19

When and who must repay an illegal distribution

Answer 19

This is when a distribution is illegally made and the company is insolvent

This is because creditor have superior claims and get paid first. So shareholder must return the money so the creditors can be paid.

Question 20

What is the sequence of activities in the monitoring of internal control

Answer 20

1 - establish baseline
2 - identify the need to make changes
3 - manage the changes
4 - revalidate or update the baseline

Question 21

What are conflict materials and when must you disclose whether you made the purchase and from where

Answer 21

These are minerals mined in an area of armed conflict and traded illicitly to finance the fighting

Publicly Traded companies that are substantial users of conflict minerals must disclose whether they imported ANY from the Congo