Introduction 1 Updated

Question 1

What are the main responsibilities of a financial manager?

Answer 1

Ensure funds are available, obtained at the lowest cost, and used efficiently.

Question 2

What are some tasks that financial managers perform?

Answer 2

They set financing priorities aligned with the company’s strategy, plan and control investments, ensure credit customers pay on time, meet financial obligations to protect the firm’s credit rating, and invest excess cash in conservative securities.

Question 3

How is ‘money’ defined in a financial context?

Answer 3

Money is a set of assets used to buy goods and services or speculate in the economy.

Question 4

What are the three primary functions of money?

Answer 4

Medium of exchange, unit of account, and store of value.

Question 5

What distinguishes money from other assets like stocks or bonds?

Answer 5

Its functions as a medium of exchange, unit of account, and store of value.

Question 6

Why is financing necessary for businesses?

Answer 6

Financing is needed to start and sustain a business, cover periods when expenses exceed sales, and fund expansion plans.

Question 7

What is the main goal of financial management from a shareholder’s perspective?

Answer 7

To maximize the current value per share of existing stock.

Question 8

List additional goals of financial management.

Answer 8

Assure solvency, avoid financial distress and bankruptcy, establish efficient financial control, and support the firm’s international strategy.

Question 9

What are some sub-goals of financial management?

Answer 9

Minimize finance costs, maximize revenues, reduce financial market risks, and maintain steady earnings growth.

Question 10

What are the three motives for companies to hold cash?

Answer 10

Transactions, precautionary, and speculative motives.

Question 11

What does the ‘transactions motive’ mean in cash management?

Answer 11

It refers to the need to balance short-term cash inflows and outflows.

Question 12

What is the ‘precautionary motive’ in cash management?

Answer 12

The need to have cash reserves for unexpected demands.

Question 13

What does the ‘speculative motive’ imply in cash management?

Answer 13

Holding cash to take advantage of attractive investment opportunities.

Question 14

What is the challenge of holding cash reserves as bank deposits?

Answer 14

Bank deposits may not generate high enough yields to meet shareholder expectations.

Question 15

How has globalization impacted capital markets?

Answer 15

It has led to deregulated and globalized capital markets, allowing firms to issue debt and equity internationally and reduce capital costs by leveraging tax and regulatory differences.

Question 16

What effect has deregulation had on capital markets?

Answer 16

It allows capital to move freely to countries with high returns and fewer restrictions, offering lower interest rates and taxes.

Question 17

How are multinational companies (MNCs) characterized?

Answer 17

By a global market presence, standardized operations, and influence in politics, business, and society.

Question 18

What is the purpose of the EU’s Digital Markets Act?

Answer 18

To limit the power of large international tech companies.

Question 19

What are the four major functions of financial managers in global finance?

Answer 19

Financial planning and control, fund allocation, fund acquisition, and involvement in corporate strategic matters.

Question 20

What is included in financial planning and control for a finance manager?

Answer 20

Creation of annual budgets, with planning and controlling functions.

Question 21

What is involved in fund allocation for financial managers?

Answer 21

Developing strategies for investing corporate funds while considering international risks and returns.

Question 22

What types of capital must finance managers secure?

Answer 22

A combination of equity and debt capital with favorable terms and varying maturities.

Question 23

What are the steps involved in financial decision-making?

Answer 23

Define objectives, identify possible actions, gather relevant data, assess data, implement decisions, and monitor outcomes.

Question 24

What is the structure of the German banking system?

Answer 24

It includes universal banks, a three-pillar system (private banks, savings banks, and cooperative banks), each with specific characteristics.

Question 25

What are some challenges for German banks?

Answer 25

Meeting Basel III/IV requirements, handling cost pressures, and adapting to the European Banking Union.

Question 26

What is the difference between commercial and investment banking?

Answer 26

Commercial banks focus on deposits and loans, while investment banks provide specialized services like M&A advisory and capital market transactions.

Question 27

What is a promissory note in financing?

Answer 27

A legal document often required for unsecured loans, detailing the repayment terms.

Question 28

What type of financing is available only to large corporations with high credit ratings?

Answer 28

Commercial paper, which is a short-term unsecured promissory note.

Question 29

What is the cost structure of trade credit?

Answer 29

Generally low, with payment terms of 30-60 days and usually no finance charge.

Question 30

Why are long-term loans and corporate bonds used in financing?

Answer 30

They offer extended repayment periods and varying interest rates depending on economic conditions and the firm’s stability.

Question 31

What role do investment banks play in the capital markets?

Answer 31

They act as market-makers and brokers, offering services like M&A advisory, IPO support, and proprietary trading.

Question 32

What are ESG challenges for German banks?

Answer 32

Increased reporting complexity, ESG criteria in pricing and product creation, and collaboration across expertise areas like IT.