Question

In: Finance

1) Organizations do not operate in a vacuum and are subject to governmental regulation. This is...

1) Organizations do not operate in a vacuum and are subject to governmental regulation. This is particularly true with publicly traded organizations. Based on business here in the United States - who can name a few regulatory bodies that directly relate to financial management?

2) What exactly is risk aversion and can it relate to cultural differences? Even if you have never been overseas - can you give an example of this here in the United States?

3) I believe that we all know what currency is - think about having a United States dollar in hand. From a financial management standpoint, why is it important to understand currency fluctuations? What are some of the key factors that cause fluctuation?

Solutions

Expert Solution

1. Few regulatory bodies that are directly related to financial management in United States of America is security and exchange commission which is managing the securities market.

Federal Reserve is another regulatory body which is regulating the monetary policy in the overall economy of United States in which is impacting the financial management to a large extent.

2. Risk aversion is reluctance on the part of an individual to take risky exposures in the market and risk aversion is related to reluctance of an individual to get exposed to risky securities.

Risk aversion can also relate to the cultural differences because they are difference in the culture of risk management that lead to level of inclusion of risk in the overall portfolio.

For example, the people of United States are having a low degree of risk aversion because they are mostly invested into equity so, almost 80% of investors are invested into equity which is reflecting the low risk aversion on the part of investors in United States of America.

3. Currency fluctuations are important to be understood because they are interacting the return of equity to a large extent and they are also affecting the portfolios which are having the foreign exposure and they are also affecting the positioning of various companies so it can be said that currency fluctuations are also relating to macroeconomic factors which will be impacting the overall direction of the economy and hence it will affect the direction of the company and overall return of the investors in the market.


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