ch01_selftest-conceptreview

ch01_selftest-conceptreview - Chapter 1: Answers to Concept...

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Chapter 1: Answers to Concept Review Questions 1. Many companies have connections between other functional areas and finance. For example, any company with international dealings must look at the impact of foreign exchange on its business. Does the firm generate revenues overseas? Does it have foreign suppliers? What impact do currency changes have on operations? If the dollar weakens, then imports become more expensive for U.S. citizens and domestic production companies may benefit. On the oth- er hand, if the firm sells its product abroad, a weaker dollar may increase foreign sales. The finance function may hedge some of the impact of currency fluctuations on the firm’s financial statements. 2. The five most important career paths for finance professionals are in corporate finance, com- mercial banking, investment banking, money management and consulting. Corporate finance is concerned with the duties of the financial manager in a business firm, while commercial bank- ing involves providing loans and other financial services to a bank’s customers. Investment banking involves three main types of activities: (1) helping corporate customers obtain funding via security market issues or complex structured financings, (2) providing advice to corporate clients on a variety of financial issues and transactions, including mergers and acquisitions and derivative products, and (3) trading debt and equity securities for customers or for the firm’s own account. Money management involves acting as a fiduciary, investing and managing money on someone else’s behalf, while consultants are hired by companies to analyze their business processes and strategies and then to recommend how these should be changed to make the firm more competitive. 3. The five basic corporate functions are financing (or capital raising), capital budgeting, finan- cial management, corporate governance, and risk management. These functions are all related, for example, a company needs financing to fund its capital budgeting choices. The financial management decision concerns management of its internal cash flows and its mix of external debt and equity.
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ch01_selftest-conceptreview - Chapter 1: Answers to Concept...

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