Finance Influences (excl. sources & institutions)

Question 1

What are the government influences on finance?

Answer 1

ASIC
Company tax

Question 2

How does ASIC influence financial management?

Answer 2

It enforces rules to protect investors and businesses from illegal practices, such as:
- Frauds and scams
- Falsely reporting financial results
- Providing false financial advice
- Directors of a business acting in their own interest rather than the interest of the shareholders

Question 3

What legislation does ASIC enforce?

Answer 3

Corporations Act 2001

Question 4

What penalties can ASIC impose?

Answer 4

Fines up to $525 million
Up to 15 years imprisonment

Question 5

What is the case study for ASIC?

Answer 5

Commonwealth Bank (misleading customers, caught by the Royal Commission)

Question 6

What is company tax?

Answer 6

A percentage of a business’ net profit paid as tax

Question 7

What is the rate of company tax in Australia?

Answer 7

Small companies: 25%
Large companies: 30%

Question 8

How does company tax influence financial management?

Answer 8

Deters foreign investors (who don’t want to be taxed on their profits)

Creates an incentive to undertake tax deductible activities (such as R&D and leasing)

Question 9

What is the case study for company tax?

Answer 9

Apple (profit shifting to Ireland, but now Australia have new minimum tax rate for multinational businesses)

Question 10

What are the global market influences on financial management?

Answer 10

Global economic outlook
Interest rates
Availability of funds

Question 11

What is the global economic outlook?

Answer 11

How well the global economy is expected to perform in upcoming years

Question 12

How does the global economic outlook influence financial management?

Answer 12

If there is a global boom:

1) the business will be confident that it will make more sales

2) the business will want to expand so will need more funds

3) the business will find it easier to sell shares at a higher price and to borrow funds (because investors are confident they will succeed)

Question 13

When in the business cycle are interest rates highest?

Answer 13

In a boom, because the RBA (the government) raise them

Question 14

When in the business cycle are interest rates lowest?

Answer 14

In a recession, because the RBA (the government) lowers them

Question 15

How do global interest rates influence financial management?

Answer 15

1) If interest rates in Australia are higher, businesses can borrow from overseas instead

2) If interest rates are high, businesses will be less willing to borrow to fund expansion

Question 16

What is meant by the ‘availability of funds’?

Answer 16

How easily businesses can attract debt and equity

Question 17

When is there the highest availability of funds?

Answer 17

In a boom, investors are willing to invest because they are confident they will be repaid / they will receive more profit

Question 18

What is the case study for global market influences on finance?

Answer 18

Virgin Airlines (was insolvent in the pandemic and struggled to access loans in the recession)