Finance And Financial Management : The Major Sub Areas Of Finance

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Question 1:
• Proficient-level: Define the terms finance and financial management, and identify the major sub-areas of finance.
• Distinguished-level: Describe the nature of risk.
Finance: “The study of applying specific value to things that we own, the services we use, and the decisions we make.” (Cornett, Adair, & Nofsinger, 2016, p. 5).
Financial Management: “The process for and the analysis of making financial decisions in the business context.” (Cornett, Adair, & Nofsinger, 2016, p. 5).
Sub-areas of finance:
1. Investments. “The analysis and process of choosing securities and other assets to purchase.” (Cornett, Adair, & Nofsinger, 2016, p. 7).
2. Financial Institutions and Markets: “The organizations that facilitate the flow of …show more content…

Liability maybe split but they are still personally responsible.
Public Corporations o Advantages- Less liability for stakeholders. Ability to raise funds/capital in the form of stocks as needed. o Disadvantages- Obligated to shareholders. Higher Taxes. Dividend payouts.
Question 3:
• Proficient-level: Define the terms agency relationship and agency problem, and list the three approaches to minimize the conflict of interest resulting from the agency problem.
• Distinguished-level: Describe the role of corporate governance.
“Whenever one party (the principal) hires someone else (the agent) to work for him or her, their interaction is called an agency relationship. The agent is always supposed to act in the principal’s best interests.” (Cornett, Adair, & Nofsinger, 2016, p. 15).
Agency Problem: “The difficulties that arise when a principal hires an agent and cannot fully monitor the agent’s actions.” (Cornett, Adair, & Nofsinger, 2016, p. 15).

Three approaches to minimize the conflict: o Independence approach o Equity approach o Market for corporate control approach
Corporate governance: “The set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.” (Cornett, Adair, & Nofsinger, 2016, p. 16).

Corporate governance is the rules in which companies are controlled. This governance essentially balances the

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