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Question 4 Differentiate the following terminologies in Financial Management Corporate Governance and Corporate Social Responsibility      ...

Question 4

Differentiate the following terminologies in Financial Management

  1. Corporate Governance and Corporate Social Responsibility       - (2-marks)
  2. Financial Market and Financial Securities                                   - (2-marks)
  3. Term Structure and Cost of Capital                                              - (2-marks)
  4. Spot Market and Futures Market                                                - (2-marks)
  5. Stakeholders and Shareholders                                                   - (2-marks)

Solutions

Expert Solution

i. Corporate Governance are rules, procedures and code of conduct laid down by the managers and members of the Organization. It ensures smooth and efficient work environment in an organization. Corporate Social Responsibility(CSR) is a indicator how company responds to social and enviornmental problems that a company creates while performing its functions. Therefore, CSR is a obligation of a company to repay for the degradation of environment or society in general.

ii. Financial Market are the market in which financial securities are traded. For example NASDAQ, NYSE etc. These are regulated financial market also referred as exchange on which securities like shares, bonds etc are traded. On the other hand, financial securities are the one which are traded on financial market. Some of the example of the financial securities is equity shares, bonds etc.

iii. Term Structure refers to interest rate of similar bonds over a period of time. It can also be graphically represented by taking interest rates of Y axis and time on the X axis. However, Cost of Capital refers to the cost which as incurred to raise funds or capital from the market. For example raising funds through loan at interest rate of 5%. Therefore, cost of capital is 5%.

iv. Spot Market refers to that market where equity stocks, commodities etc are traded immediately. The transaction has to be setlled at that point of time by delivering the underlying asset and paying for the same. However, futures market refers to delivering and cash settlement at a future date whose exercise price, quantity and future date is determined today. Therefore, no transaction takes place today but it takes place in future.

v. Stakeholders refers to those people whose interest lies in the performance of the company. They are the one concerned with the performance of the company even if they don't own any share in the company. For example employees, bondholder of the company, managers etc. However, Shareholder refers to those people who purchase a share in the company and are the owner of the company. It is rightly said that all shareholders are stakeholders but not all stakeholders are shareholders.

If you have any doubt, ask me in the comment section please.

jeff jeffy answered 1 year ago
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