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dexazuxo's version from 2017-05-13 12:36


Question Answer
What is the link between the finance system and corporate governance?Debt (bank) based approach: This is where banks dominate relationships and regulations are tighter.
Equity (Market) based approach: This is where equity funding is more heavily used to finance business capital. regulations are lighter (Anglosaxxon approach)
KEY: Both seek to limit asymmetric access to data
Signs of good and poor governance.Good governance:
External and internal audit
Active whistleblower policy
Non execs independent but involved
Poor governance:
Domination of the board by 1 individual
Lack of involvement by non execs
Poor supervision of employees
Misleading financial information
What problems are addressed in the corporate governance code? 1) Principles agent problem
2) Problem of 1 individual dominating board
3) How to impose full disclosure
What are the different types of risk? 1)----Default risk: Risk borrower may fail to pay back money/interest
2)----Capital risk: Risk that the capital value of asset may change from what expected. capital value may be lower than when invested
3)----Income risk: When a certain level of income is expected but is not received
4)----Reinvestment risk: When redeemed, cannot reinvest to equal value of original investment. rates of return lower when bought before
What is corporate governance?Code of ethics and regulations that managers and directors of a company run down affairs to ensure they met proper contributions to shareholders and wider society.
The system by which a company is directed and controlled.
Responsibility of the management to the stakeholders.
What are ultimate lenders and borrowers?Ultimate lenders: Agents whose economics transactions creates a surplus
Ultimate borrowers: Agents whose expenditure is higher than their income. Therefore must borrow funds to meet this deficit.
Regulatory body of corporate reporting.FRC.
Statutory regulation of financial services and system1) PRA - Prudential regulations authority (promote safety and soundness of banks)
2) FCA - Financial conduct authority (make sure banks deliver fairly)
3) Financial ombudsman - Deals with small disputes
Name 2 financial markets and what they deal with.Capital markets and money markets.
Capital markets: deals with longer term securities that take the form bonds and equities. NOT immediately liquid money
------Market for bonds
------Market for equities
------Market for mortgages
------The eurobond market
Money markets: Deals with shorter term liquid money. This is the exchange of money between lending and borrowing.
------The discount market
------The interbank market
------The local authority market
------The certificate of deposits market