Chapter 1

Question 1

Different interest in firms

Answer 1

• creditors
• Employees
• Customers
• Society
• Shareholders
• Managers

Question 2

Whats the conflict between interests and their objectives?

Answer 2

Which interests are to have their objective maximized and which are merely to be satisfied

Question 3

Perspective - Pro capitalist economists

Answer 3

The purpose of the firm is the owners

Question 4

Perspective - Left wing

Answer 4

Primacy of workers rights and rewards

Question 5

Perspective - Balanced stakeholder approach

Answer 5

A balanced view between the claimants

Question 6

Possible objectives

Answer 6

• Achieving a target market share
• Keeping employee agiation to a minimum
• Creating an ever-expanding empire
• Maximisation of profit
• Maximisation of long-term shareholder wealth

Question 7

What is shareholder wealth?

Answer 7

• Can be defined as maximising shareholders purchasing
• Or maximising the flow of dividends to shareholders through time

Question 8

What is corporate governance?

Answer 8

The system by which companies are managed and controlled, its main focus is on the responsbilities and obligations placed on the executive directors and the non-executive directors and on the relationships between the firms owener etc

Question 9

The role of the financial manager

Answer 9

Is to use capital from investors to use in the firm for ex a new machine, this gives profit where the money is kept in the company, pay of creditors or given back to the investors

Question 10

What is the role of financial intermediaries?

Answer 10

To facilitate the flow of funds from primary investors to ultimate borrowers at a low cost