Chapter 4 - Undestand Financial Aspects

Question 1

What are the financial objectives (pg 243)

Answer 1

• Company valuation
• Maximisation if shareholder wealth
• Maximisation of profits
• Stakeholder view implementation

Question 2

What is working capital (pg 297)?

Answer 2

Difference between current assets and current liabilities

Question 3

What is cash flow?

Answer 3

The money that moves in and out of a business - usually part of a report for a period (quarterly or annually)

Question 4

What is liquidity?

Answer 4

What you can get your hands on in a year - ie the ease in which assets can be converted to cash

Question 5

What makes up Product costs (pg 289)?

Answer 5

Direct material costs 
Direct labour costs
Manufacturing overheads - made up of;
- Indirect material
- Indirect Labour
- Other costs

Question 6

What are the types of exchange rate regime (pg 322)?

Answer 6

• Floating raté régime (market forces decide the rate)
• Pegged régime
• Fixed régime (monetary authorities determine the rate)

Question 7

What are some factors effecting foreign exchange (pg 328)

Answer 7

• Interest rates
• Inflation rates
• Speculation
• Political Instability
• Government policy
• Terms of trade
• Strength of other currencies
• A countries current accounts
• Recession
• Economic factors
• Government debt

Question 8

What steps occur with a high commodity (pg 358)?

Answer 8

A commodity with a high price means less purchasing ability by customers

Which leads to less demand for the commodity

Which means less commodity supply

Which will drive the price up

Question 9

What occurs with low price commodities (pg 358)?

Answer 9

Low price leads to higher purchasing ability by customers

Increases demand for commodity

Increases the supply for the commodity

Question 10

What are the characteristics of a commodity (pg 358)?

Answer 10

They are Fungible (all units are the same)

They can be raw materials

Can be traded using spots and futures, and forward constraints

The providers do not control the price - on any day they have to take the market price

Question 11

What are the characteristics of Differentiated products (pg 358)?

Answer 11

Differentiated to make them unique and different to competitor products

Finished items like laptops

Sold directly to consumers

Selling companies can control the price and change it at their will - therefore called ‘price makers’