Question

1. What types of risks should shareholder wealth-maximizing managers seek to offset in a firm they are managing? Why?

2. How can patents, copyrights, and legal challenges be used to manage business risk?

Answer 1

1. Types of risk, shareholder wealth maximizing managers will be seeking to offset are as follows-

A. Credit risk-these are the risks that money will not be returned by the debtors in the events like bankruptcy so they will be trying to eliminate the credit risk.

B. liquidity risk-they will be trying to eliminate the liquidity risk of not selling the investments at a fair price into the market.

C. Concentration risk-this is a risk that investment are not concentrated in one single stock so they will be trying to spread through different stock by diversification.

D. Macroeconomic factors like interest rate risk and foreign exchange risk along with growth rate risks and other fiscal and monetary policy is needed to be managed by wealth maximizing managers.

2. Patent copyright and legal challenges can be used to manage business risk by making them applicable for sustainable growth in the future by reduction of the competition in the market and gaining a competitive edge.

By getting patents and copyrights a business can introduce unique products and increase the market share of itself.

Application of patent will be helping the business in not letting the competitors copy your product and services and increase the unique profitability in the long run.