Part I Overview Business professionals typically need to demonstrate a core set

Question

Part I Overview Business professionals typically need to demonstrate a core set of financial knowledge to earn the job and to succeed on a job. For this part of the assessment, you will be given a scenario in which you are asked to illustrate your financial management knowledge. This part of the final project addresses the following course outcomes e Analyze the roles and responsibilities of financial managers in confirming compliance with federal and shareholder requirements . Differentiate between various financial markets and institutions by comparing and contrasting options when selecting appropriate private and corporate investments Part I Prompt You have completed an internship in the finance division of a fast-growing information technology corporation. Your boss, the financial manager, is considering hiring you for a full-time job. He first wants to evaluate your financial knowledge and has provided you with a short examination. When composing your answers to this employment examination, ensure that they are cohesive and read like a short essay. Your submission must address the following critical elements I. Analyze Roles and Responsibilities for Compliance A Examine the types of decisions financial managers make. How are these decisions related to the primary objective of financial managers? B. Analyze the various ethical issues a financial manager could potentially face and how these could be handled. C Compare and contrast the different federal safeguards that are in place to reduce financial reporting abuse. Why are these considered appropriate safeguards? Il. Investment Options A. If a private company is "going public," what does this mean, and how would the company do this? What are the adventages of doing this? Do B. How do the largest U.S. stock markets differ? Out of those choices, which would be the smartest private investment option, in your opinion? C. Compare and contrast the various investment products that are available and the types of institutions that sell them. you see any disadvantages? If so, what are they? Why?

Explanation / Answer

Roles and Responsibilities for Compliance:

The types of decisions taken up by a financial manager can be broadly categorized into three types. They are:

Investment decision:

Investment decision may be either for the long-term or for the short term. In case of long-term investment the decision will be regarding the selection of long term investment proposal. This is also known as capital budgeting decision. A long-term investment decision can be internal or external. An example of internal long term investment decision is purchase of machinery and an example of external long term investment decision is merger and acquisition.   

Short term investment decision is also known as working capital decision. It deals with the management of current assets and current liabilities. The aim is to maintain a balance between liquidity and profitability of the company.

Financing decision:

This decision is concerned with the raising of funds that are used to finance assets. The finance manager should ensure that there is sufficient amount of money with them so that they can carry out their operations and procure assets, raw materials, technology etc. It is also concerned about the proportion of finance from the various forms of capital.

Dividend decision:

A part of the profit earned by the company is shared with the shareholders by giving them dividend. The finance manager has to decide the amount of profit that will be shared as dividend and how much will be retained as earnings with the firm. Stability in dividend is a positive effect on the market price of the firm.

Ethical issues in finance manager:

A finance manager has to ensure that the financial statements are prepared properly following the generally accepted accounting principles. They should work for the wealth maximization of the shareholders. Their own personal interests should not be the focus. If the manager starts thinking about his personal interests and not the maximization of the shareholders’ wealth then it will lead to agency problem. In order to avoid this, the manager should follow the corporate governance principles.

Financial safeguards to avoid financial reporting abuse:

One of the most important financial safeguards that have been introduced to reduce financial reporting abuse is the Sarbanes-Oxley Act. It was created in 2002. The aim was to ensure that the persons from the company who misused their power or position to misguide the investors would be held legally accountable. Later, the Financial Accounting Standards Board was set up by Securities Exchange Commission for controlling financial scandals that would arise due to improper accounting practices.

Investment Options:

If a company wants to go public, then it means that the company will be issuing shares in the stock market. This is done by a process called IPO (Initial Public Offering). The process of IPO is the first time a company issues its shares in the market. The advantage of issuing shares is that it is a way to get money in the company which can be used for the company’s expansion. It also brings in more number of people in the company as owners. The shareholders are the owners of the company. The advantage is that the company’s capital structure will be balanced as it has a debt as well as an equity component. The disadvantage is that the ownership of the company gets diluted.

The largest U.S stock markets are: NYSE and NASDAQ. There is a significant difference between them i.e. NYSE is an auction market while NASDAQ is a dealer market.

The different types of private investment options are: Stocks, Bonds, Mutual funds and Exchange traded funds. Stocks are investments made in a company’s stocks. This is basically an investment in the equity market. The shareholders become the owners of the company and they have a right on the assets of the company. They will receive dividends for their investment in the stock market. Bonds are investment made in a company. It is similar to giving a loan to the company. The bondholders will receive interest for the amount that they have invested in the bond. Mutual funds are investment made in funds that are diversified in a number of financial instruments like equity, debt, bonds etc. They are managed by a mutual fund manager and a large number of investors’ money is pooled into it. Exchange traded funds are similar to mutual funds but as the name suggests, they are actively traded on the exchanges i.e. stock exchanges. I believe the smartest investment among these is the mutual fund as the risk is well diversified in it.

Shares are sold in stock market, bonds are sold by companies while the mutual funds and exchange traded funds are sold by financial institutions.

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