The paper ' International Financial Management' is a wonderful example of a Management Assignment. The separation of ownership and control in organizations refers to the practice of shareholders appointing managers to run firms for them. The managers are in control of the operations and decision made although they are not the owners of the organizations. Agency theory indicates that the managers and the shareholders of companies operate in a principal-agent relationship. The managers are the agents of the shareholders and they have to operate towards their best interest. In this relationship, the owners have to play an oversight role in order to ensure that the managers do not take advantage of the firm for their own good because they have the authority to make decisions (Cheffins & Bank, 2009). The issue of the separation between ownership and control presents some serious challenges for multinationals.
One of the main issues is the agency costs that the firm has to bear because of the asymmetric of the interests of the different stakeholders. The shareholders of a firm have to develop efficient oversight frameworks such as boards and audits to ensure due diligence in the actions of the managers.
Another aspect of importance is that the firms have to provide significant motivation and incentives to align the interests of the managers and the shareholders. The issue of risk-bearing and decision making is another problem facing multinationals. Agents are expected to make decisions that will produce the highest returns for the shareholders. However, these decisions may also involve significant risks that the shareholders may not appreciate (Ruiz-Porras & Lopez-Mateo, 2011). In this case, information asymmetry may hinder adequate decision making and risk-bearing in multinationals. Discuss in your own words, the functions of the foreign exchange market, market participants, and transactions. The foreign exchange market involves the institutional and physical structure that enables money from one country to be exchanged for that of another country.
It is a global structure because virtually every financial center has a center where the domestic currency is exchanged for foreign ones. The main function of the foreign exchange market is to enable the purchase and sale of foreign currencies by traders.
The market plays an important role in determining the exchange rates for the different currencies because they are determined by the forces of demand and supply. It presents a ready framework for people in need of foreign currency in a country to get it easily in order to facilitate international trade (University of Colorado, 2013). The foreign exchange market has a transfer function in which it transfers purchasing power by converting one currency into another. In this way, it enables the consumers in one country to initiate bank drafts, international transfers, and foreign bills that clear debt in both directions.
In this way, earnings made in one country can enter the national economy of another. The foreign exchange market also serves the function of providing credit for international trade. This is provided through foreign bills of exchange that enable the market to facilitate international trade and provide credit for a period of three months. The market also serves the purpose of minimizing foreign exchange risk faced by traders. Foreign exchange risk is addressed through hedging activities that are undertaken in the market. The market provides opportunities for investors and traders to mitigate changes in the foreign exchange rates and lower the risk of losses (University of Colorado, 2013).
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