- 20 Marks
FM – NOV 2016 – L2 – Q1 – Introduction to Financial Management
Explains the agency problem in public companies, practical solutions, non-financial objectives, governance conflict solutions, and internal hedging methods.
Question
a) Explain the term Agency problem in relation to a Public Limited Liability Company? (2 marks)
b) As a Finance expert, explain THREE practical steps to manage agency problem in public limited liability companies. (3 marks)
c) Profit maximization is the core objective of shareholders in Public limited Liability Companies. Identify and explain THREE other non-financial objectives that can be pursued by a Public limited liability Company. (3 marks)
d) Shareholders are risk-takers but Directors are risk-averse. Explain THREE approaches that corporate governance has identified for addressing conflict of interest between shareholders and Directors. Reference can be made to Companies Act 1963, (Act 179) (6 marks)
e) Explain THREE internal hedging methods that a company can use in order to minimize translation risk and transaction risk. (6 marks)
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