Introduction 1

Question 1

What are the main tasks of a Financial Manager?

Answer 1

Ensuring that funds are available, obtained at the lowest possible cost, and used efficiently.

Question 2

What functions does money fulfill in the economy?

Answer 2

Medium of exchange, Unit of account, Store of value.

Question 3

What are the key goals of Financial Management?

Answer 3

Maximizing the current stock value, ensuring solvency, avoiding financial distress, and supporting the company’s international strategy.

Question 4

What are the motives for holding cash?

Answer 4

Transaction motive, Precautionary motive, Speculative motive.

Question 5

What does globalization mean in finance?

Answer 5

Deregulated and cross-border capital markets that allow companies to issue debt and equity internationally.

Question 6

What are the characteristics of Multinational Corporations (MNCs)?

Answer 6

Global presence, standardized operations, influence on politics and society.

Question 7

What are the four main functions of global financial management?

Answer 7

Financial planning and control, Fund allocation, Fund acquisition, Strategic involvement in corporate matters.

Question 8

What steps are involved in financial decision-making?

Answer 8

Defining goals, identifying options, collecting relevant data, evaluating and implementing decisions, and monitoring the outcomes.

Question 9

How is the German banking system structured?

Answer 9

Three-pillar system: Private banks, Savings banks/Landesbanks, Cooperative banks.

Question 10

What distinguishes Commercial Banking from Investment Banking?

Answer 10

Commercial banking focuses on deposits and loans, while investment banking focuses on specialized financial products like M&A advisory and capital market transactions.
Also commercial banks deals with every customer, and investment banking focus on special customer.

Question 11

What are the Tasks of a financial manager in detail?

Answer 11

• To establish financing priorities in line with a company’s strategy.
• Investments have to be planned and controlled.
• Make sure that credit customers pay their bills on time.
• Fulfill financial obligations on time to protect the firm’s credit rating and its ability to borrow money.
• Ensure that excess cash is invested in conservative, marketable securities.

Question 12

What is the need for Financing?

Answer 12

Money is needed both to start a business and to keep it going. Ideally sales revenues should be used to pay the firm’s expenses and provide profit as well. Temporarily financing may be needed when expenses are high und sales are low or expansion plans require more money than currently available within the company.

Question 13

What are the sub goals of a financial manager?

Answer 13

-Minimize finance costs
-Maximize revenues
-Minimize financial markets risks
-Maintain steady earnings growth

Question 14

Why companies need to have cash reserve?

Answer 14

to balance short-term cash inflows and outflows since they are not perfectly matched.

Question 15

How can u find out the amount of the cash reserve?

Answer 15

The approximate size of the cash reserve can be estimated by forecasting cash inflows and outflows and by the preparation of cash budgets.

Question 16

What is the precautionary motive?

Answer 16

• Sometimes companies will experience unexpected demands for cash which gives rise to the precautionary motive for holding cash.
• These reserves could be in the form of easily realized short-term investments.

Question 17

What is the speculative motive?

Answer 17

• Companies can also build up reserves in order to take advantage of attractive investment opportunities, for instance in the takeover market.
• If a company has significant cash reserves for which it cannot see an advantageous use, it may return this cash to shareholders.

Question 18

What is the problem of cash reserves held as bank deposits?

Answer 18

They don’t generate sufficiently high yields which comply with the expectations of the shareholders.

Question 19

Globalization refers to what?

Answer 19

to the barrier-free cross-border movement of goods, services, people and money.

Question 20

What happens to capital markets after globalization?

Answer 20

Capital markets are now deregulated and global.

Question 21

Describe the advantages a company gets from globalization.

Answer 21

• Globalization refers to the barrier-free cross-border movement of goods, services, people and money.
• Capital markets are now deregulated and global.
• Large multinational firms routinely issued debt and
  equity outside their home country.
• By taking advantage of the difference in taxes and regulations across countries, firms can lower their cost of capital.
• Highly sophisticated products were created in order to meet special finance needs of corporations.

Question 22

Describe the process of deregulation

Answer 22

• The worldwide globalization movement let to deregulated capital markets.
• Capital will tend to go to countries where returns are large and restrictions on capital outflows and inflows are low.
• Deregulated markets tend to offer lower interest rates and taxes for lenders and borrowers.

Question 23

Describe the advantage of innovation finance instruments

Answer 23

• Globalization has also spurred financial innovation like asset securitization.
• Securitization is the process of bundling assets (receivables), registering the bundles as securities and selling the directly to the public.
• Instruments like securitization allow companies to avoid the constraints of costs by governments and to appeal new sets of investors.
• Financial Derivatives which are often used for risk mitigating as well as speculative reasons.