COMMERCE 2FA3- Final Exam Guide - Comprehensive Notes for the exam ( 33 pages long!)
4 Dec 2017
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L1 chapter 1 the financial landscape & 4. 3 efficiency. Agency problems: managers may take actions more in their own interest than in the interest of the firm. They may sometimes personally benefit from pursuing short-term numbers at the expense of long-run performance. Assumption: in modern finance, there will be no agency problems. Reasonable that if management compensation schemes are properly devised then agency problems can be minimized. Such compensation schemes would them act to align the interests of the manager and the corporations. Initial public offering (ipo) takes place in primary markets. Real interest rates tend to be low when a country has a saving mentality. Newly-issued securities are sold in primary markets (with the aid of investment banks). An example of a primary market is nasdaq. Debentures are secured by mortgages or liens on specific assets. The agency problem exists because the owner of the firm (agents), have interests that may diverge from the managers of the firm (principals).
