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business
international financial management

Questions and Answers of International Financial Management

5 Financial intermediaries. Explain the functions of financial intermediaries in bringing together individual borrowers and savers.
6 Financial regulation, (a) What are the arguments for and against the introduction of greater statutory controls to regulate financial markets? (b) Briefly describe the role and function of the
7 Venture capital, (a) What is a venture capital company (VCC)? (b) Explain the role of a venture capital company.
1 understand the nature and role of capital markets;
2 define the respective roles of securities markets;
3 understand the importance of market efficiency;
4 explain the difficulties experienced by small firms in raising capital in the markets.
Briefly explain the role of a securities market.
Hoseknit Clothing has 9 million £1 ordinary shares in issue. The shares are currently trading in the stock market at £3.75. The directors wish to raise a further £4.5 million for expansion and a
If, before the capitalisation issue, Airtours’ ordinary shares were trading at £12.35, an increase of 406 per cent in the share’s market value over six years, you are required to:(a) Calculate
Survey the financial press for two examples of companies whose share price has moved in response to new information about the companies becoming known to the financial markets. One example should
Do you agree with Lord Weinstock’s view of the stock market?Explain your answer.
1 (a) What are capital markets? (b) What role do they play in financial management?
2 Describe the main securities traded in a stock market.
3 (a) Discuss the aims and activities of the London Stock Exchange, (b) Summarise the key requirements which a company must satisfy in order to obtain admission to the Official List.
4 What is meant by stock market ‘liquidity’ and why is it considered important?
5 Outline the respective roles of market maker and broker-dealer.
6 (a) What do you understand by the term ‘market efficiency’ in financial management? (b) What are the implications of market efficiency for the financial manager?
7 Small firms financing, (a) Outline the particular problems experienced by small firms in raising finance, (b) Identify the main sources of specialised financing available to small firms.
8 Rights issue. Describe briefly what a ‘rights issue’ is and explain why such issues are a common way of raising additional finance.
9 Stock exchange listing methods. Briefly explain the methods whereby a company can obtain a quotation for its shares on the London Stock Exchange.
10 The Alternative Investment Market (AIM). (a) Discuss the role of the London Stock Exchange’s Alternative Investment Market (AIM).(b) Lofty Enterprises is a rapidly growing private company which
11 Market efficiency. The following two comments were drawn from separate articles in a highly respected financial newspaper:‘Market efficiency does not mean that share prices can be forecast with
12 Seeking a stock market listing. (a) CP plc is a company operating primarily in the distribution industry. It has been trading for 15 years and has shown steady growth in turnover and profits for
13 Rights issue. Hoseknit Clothing has 9 million £1 ordinary shares in issue. The shares are currently trading in the stock market at £3.75. The directors wish to raise a further £4.5 million for
1 Prepare forecast profit and loss statements for each year of the three year planning period.
2 Using the forecast profit and loss statements calculate three relevant financial ratios for each year of the forecast.
3 Prepare statements showing the expected free cash flow for the current year and for each year of the planning period. For convenience you should assume that tax, interest, and dividends are all
4 Based on your findings, present relevant comments and observations on the company’s plans, objectives and methods of forecasting.
5 How do you think the company’s objectives relate to the goal of the shareholder wealth maximisation?
1 understand the time value of money (TVM) concept and its role in financial decision-making;
2 calculate the future value (FV) and the present value (PV) of differing cash flow streams;
3 understand and calculate net present value (NPV);
4 calculate perpetuities.
For practice you may wish to calculate the future amount if the initial sum is left on deposit for 10 years and the interest rate remains fixed. You will find the answer in Appendix B.
For practice, read from the future value tables the future value interest factors (a) (1+0.05)6 and (b) (1+0.12)9.
You may wish to test this for yourself with the same original data but assuming monthly interest payments.
Find the present value of the following:(a) £1,000 due to be received three years from now with an opportunity cost of 7%.(b) £3,000 due to be received six years from now with an opportunity cost
How much would an investor have to deposit each year, at an interest rate of 6%, if he wished to accumulate the sum of £8,000 in 7 years time?
Find the present value of a seven-year £1,500 annuity using a 12%discount rate.
Find the present value of:(a) a perpetuity of £500 assuming a discount factor of 8%; and(b) a perpetuity of £500 assuming a discount factor of 8% and a growth factor of 4%.
1 (a) What do you understand by the time value of money concept? (b) Why is it considered important for the financial manager to understand this concept?
2 What do you understand by the concept of opportunity cost?
3 There are two perspectives on the time value of money, what are they and how are they related?
4 Explain the term ‘net present value’ (NPV).
5 (a) How would you define an annuity? State some applications of an annuity in financial management. (b) How would you define a perpetuity? State some applications in financial management, (c) What
6 Future Value and Present Value.(a) Calculate the future value of £5,000 at the end of 10 years at an annual compound interest rate of 10%.(b) Calculate the present value of £8,000 at the end of 8
7 Present Value. Suppose that you have won a grand prize draw competition which offers you the opportunity to receive your winnings in the form of either £30,000 at the end of each year for the next
8 Assessing investment options. Peter Principal has a lump sum of £10,000 available for investment now and wishes to accumulate at least the sum of £15,000 in five years time, although he considers
9 Net Present Value. Susie Lee owns the Lotus Blossom Bar and Restaurant and is considering the following investment to upgrade the existing facilities. The cash flows for the investment are
1 understand the meaning of risk and return in investment management;
2 measure risk and return for an individual asset;
3 explain the nature of the risk-return relationship;
4 measure risk and return for a portfolio of assets;
5 explain how diversification affects the risk and return of a portfolio of assets.
Calculate the expected return on the following investment for FutureSpec Technologies. You will find the answer in Appendix B.Probability Return 0.10 −10%0.20 8%0.40 10%0.30 20%
Before proceeding calculate the expected rate of return and the standard deviation for each asset A and B as shown in Table 6.1.Asset A Asset B Rate of return (%)Probability of occurrence, P(ri)Rate
Calculate the coefficient of variation (CV) for assets A and B as shown in Table 6.1. Which do you consider to be the riskier investment? Give your reasons.
Calculate the expected return of the two-asset portfolio A and B as shown in Table 6.1, assuming funds are invested in the proportions 60 per cent asset A and 40 per cent asset B.The table below
Calculate the standard deviation, σp, of the two-asset portfolio with the original 60/40 weightings reversed and assuming perfect negative correlation.
1 (a) What do you understand by the terms expected return and required return? (b)How would you define risk in financial management? (c) Compare and contrast the three main attitudes to risk which
2 Explain the function of the statistical concepts of standard deviation and coefficient of variation as measures of investment risk.
3 What is meant by an efficient portfolio?
4 Explain the effect of the correlation of asset returns on portfolio risk.d) Why is it considered
5 Return. Calculate the rate of return earned (realised) on each of the following investments over the past year.Investment Opening Value (£) Closing Value (£) Cash Flow (£)1 10,000 11,000 500 2
6 Risk and return. Calculate the expected return and risk (standard deviation) of the following investment. If the return on a risk-free investment (e.g. a Treasury bill) is currently 7 per cent
7 Coefficient of Variation. Set out below are the returns and their respective probabilities for two assets A and B.Asset A Asset B Return Probability Return Probability 10 0.05 9 0.10 11 0.25 12
8 Correlation. As the financial manager of HighGrowth Ltd. you are considering the following three projects as potential investments. Your assistant has estimated the future net annual cash inflows
Assume you were reading an article on the auditing profession in a professional accounting magazine that included terms such as independence and auditors’ responsibilities. It also noted that there
Wings Ltd is an airline services company with a plant near Sydney Airport and service centres in several states.It provides meals, serviettes and other food-related items, cleaning, interior
Refer to the extracts of the 2021 annual report of Woolworths Limited (https://www.woolworthsgroup.com.au/icms_docs/195984_annual-report-2021.pdf) in the book’s appendix. All questions relate to
The Framework for the Preparation and Presentation of Financial Statements examines the characteristics of accounting information that make this information useful for decision-making. It also points
The following items were taken from a recent cash flow statement. Note that different companies use slightly different titles for the same item. Mark each item in the list as a cash flow from
Calculate shareholders’ equity Given the following information relating to Stripes Ltd, what is the balance of shareholders’ equity?$Land and buildings 2 800 000 Accounts payable 250 000 Cash and
Calculate shareholders’ equity GT Limited has the following assets and liabilities.$Cash 200 000 Loan 300 000 Accounts payable 220 000 Accounts receivable 340 000 Equipment 400 000 1 Classify each
Assume you are the owner of Double Café, a coffee shop in Sydney’s CBD. At the end of June 2022, you find(for June only) this information:1 Sales, as per cash register records, of $47 000, plus
Given the following balances, prepare an income statement for the year ended 30 June 2022 for Bush Traders.$Sales 480 000 Cost of goods sold 210 000 Wages 80 000 Electricity 40 000 Travel 20 000
Given the following information, prepare an income statement for PK Ltd for the year ended 30 June 2022.$Sales 700 000 Cost of goods sold 400 000 Rent expense 60 000 Wages 150 000 Advertising 50 000
Raindrop Holdings Ltd is a public company. Listed below are items taken from its recent balance sheet and income statement. Mark each item in the following list as an asset (A), liability (L) or
Cardigan Ltd has total assets of $150 000 and liabilities that add up to $70 000 as at 30 June 2021.1 What is Cardigan’s shareholders’ equity as at 30 June 2021?2 During the year to 30 June 2022,
Listed below are balances for 2022.$Accounts receivable 100 000 Sales 250 000 Electricity 30 000 Retained profits 70 000 Loan 200 000 Transportation costs 10 000 1 Classify each account as an asset,
Match each item with the financial statement that it would appear in by ticking the appropriate column.Item Asset Liability Shareholders’equity Revenue Expense Inventory Cleaning expenses Cash at
Kingsford Customs was founded on 1 July 2022. At the end of the first year’s operations, the following summary of its activities has been prepared by the owner.1 Borrowed cash of $60 000 from CAA
Match each item with the financial statement it would appear in by ticking the appropriate column.Item Balance sheet Income statement Statement of cash flows Wages expense Cash paid for equipment
1 Given the following balances, prepare a balance sheet as at 30 June 2022 for Willow Tree Limited.$Share capital 260 000 Bank loan 40 000 Accounts payable 90 000 Wages payable 50 000 Inventory 200
1 During the year ended 30 June 2022, French Horn Ltd made cash sales of $100 000, credit sales of$200 000 ($40 000 of which were still to be collected at year-end), and received $28 000 owing from
James Smith started a consulting business on 1 January 2022. During the period up to 30 June 2022, the following transactions occurred:1 James put $100 000 of his own money into the business.2 He
Paul Jones set up his own catering business on 1 July 2021. During the 12 months up to 30 June 2022 the following transactions occurred:1 Paul put $30 000 of his own money into the business.2 He
What are various people’s interests in financial accounting?Briefly describe what each of the following people would likely want to learn from the financial statements of BrandX Ltd, and how each
19 What other labels are used to describe a ‘balance sheet’ and an ‘income statement’?
18 The Framework states that understandability is an enhancing qualitative characteristic. Is this consistent with the huge complexity in financial statements?
17 Provide an example of trade-offs among accounting principles.
16 What are the fundamental qualitative characteristics of useful financial information and what are the enhancing characteristics?
15 Explain, in simple terms, each of the following financial accounting terms:a accounting entity b accounting period c going concern d materiality.
14 What are the three key financial statements, and what relevant information do they provide to users of accounting reports?
13 Consider the following accounts: accounts payable, accounts receivable, cash and inventory. Which of these terms would you see in financial statements prepared under (a) accrual accounting and (b)
12 Who uses accrual accounting?
11 Describe what is meant by accrual accounting. How does it differ from cash accounting?
10 What does an audit achieve?
9 List five situations in which judgement is required by the preparers of financial information.

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