1.1 The Global Financial Marketplace
1) The global financial marketplace consists of assets, institutions, and linkages. Explain how these factors come together to form the marketplace we know today.
Answer: Financial assets , such as government securities, are at the heart of today's global financial marketplace. These securities set the standard and establish rate and price benchmarks for other financial assets sourced by private and public firms and NGOs. Central banks help establish and implement monetary policy and regulate the commercial banks which take deposits and make loans. The assets and institutions are linked by the interbank networks operating ...view middle of the document...
Answer: The authors provide 5 strategic motives for firms to become multinationals: market seekers, raw materials seekers, production efficiency seekers, knowledge seekers, and political safety seekers. Market seekers are looking for more consumers for their products such as automobiles or steel. Knowledge seekers may be looking for an educated workforce similar to the way firms seeking R and D set up shop in university towns. Raw materials seekers may be after commodities such as oil or copper. Production efficiencies may occur in countries like Mexico that have capable workers and lower wages. Political safety seekers are looking for countries that will not expropriate their assets, so they may stay away from countries that in the post have engaged in such activities.
Topic: 1.4 Market Imperfections
2.1 Who Owns the Business?
1) The authors reference empirical evidence that family-controlled firms all over the world may outperform publicly traded firms. What factors are cited as reasons for this occurring?
Answer: The authors note three primary reasons. 1) Family-owned firms focus on the long-run, 2.) they stick to their core business, and 3) because the owners are closer to management, fewer conflicts arise between management and ownership - thus reducing the agency problem.
Topic: 2.1 Business Ownership
2.2 What is the Goal of Management?
1) Compare and contrast the Shareholder Wealth Maximization model and the Stakeholder Capitalism model for purposes of managerial goals.
Answer: SWM is at the heart of the Anglo-American form of corporate management in that the primary objective is to maximize shareholder's wealth. SWM assumes that markets are efficient in that security prices react quickly and correctly to the arrival of new information. Further, unsystematic risk can be eliminated through diversification and that systematic risk must be evaluated by market participants. Sometimes, however, capital can be impatient and cause management to focus on short-term benchmarks causing a shift away from wealth maximization.
The SCM recognizes that there are several powerful interests at work influencing management. In addition to stockholders, there are also banks, governments, and workers that place constraints on management behavior. SCM does not specifically assume efficient markets but it does consider total risk to be important in valuing a firm.
Topic: 2.2 Goal of Management
2) Describe the management objectives of a firm governed by the shareholder wealth maximization model and one governed by the stakeholder wealth maximization model. Give an example of how these two models may lead to different decision-making by executive management.
Answer: Shareholder wealth maximization attempts to do just that, typically through the maximization of share price. Stakeholder wealth maximization is much more difficult because of the necessity to satisfy many stakeholders...