Fundamentals of Finance | Assignment

Running head: FUNDAMENTALS OF FINANCE
Fundamentals of finance
Name of the Student
Name of the University
Author Note

FUNDAMENTALS OF FINANCE
Table of Contents
Answer to question 1:.................................................................................................................1
Answer to question 2:.................................................................................................................2
Answer to question 3:.................................................................................................................3
Answer to question 4:.................................................................................................................4
Answer to question 5:.................................................................................................................5

FUNDAMENTALS OF FINANCE
Answer to question 1:
The term finance is related to the broad and detailed study regarding the system of
money and its investments including several instruments which are directly related finance.
Finance is simple terms can be defined as the management of large amount of money either
by the government or by the companies on a large scale. Finance is divided into three distinct
sectors named as the public sectors, corporate sector and the private finance. Apart, from
these significant sectors, the financial sectors are also having bodies like social and
behavioral finance which indicates the behavioral, social and psychological reasons behind
the investments of finance of any individual. Whereas, financial management indicates the
planning, organization and the proper utilization of the financial activities which includes the
correct procurement and the optimal utilization of the funds of the concerned enterprise or the
company (Ahmed et al., 2017). Furthermore, there are three major elements of financial
management including investments, financial and dividend investments.
Answer to question 2:
The three basic forms of any business ownership each having their own advantages
and disadvantages is mentioned below. One should be properly aware of them before getting
into any business situations in order to avoid any kind of potential problems
Sole Proprietorship:
A proprietor is the one who owns this kind of business, and he himself/herself is the
one who manages the enterprise and is the decision maker however there are certain
disadvantages which are related to it is that the proprietor assumes all the risk attached to the
enterprise and that the personal assets are taken by the creditors (Hoyle et al., 2018)
Partnership:

FUNDAMENTALS OF FINANCE
Any partnership business or an enterprise includes more than one operator there can
be two or more in a partnership business. Both the partners may manage the business.
However in this case there are disadvantages, like the sole proprietorship, partners may
assume the risks for the business and their assets may be taken by creditors, whereas the
partners may disagree about the techniques and the strategy used for running the business or
the enterprise, which often results in disagreements and conflicts in between the partners. The
most primary significant of a partnership of any business or enterprise is that there are more
than a single who can make the decision also share the risks which are associated with it.
Corporation:
As it is known that usually a corporation may have many owners and they usually
employ professional managers. The owner’s risk is usually limited to their personal
investments and they have very minor impact on the decisions which are related to business,
the corporation veil may be pierce if the corporation is negligent in its operation.
Answer to question 3:
Agent relationship can be explained by discussing about agency which is comprised
of two parties, of which one of the party are known as the principal delegates and the other
party which is called the agent, the principal party or principal delegates are the ones who
imply the power on the agents to act in a certain way.
In order to avoid any difficulties or failure in the contract it is important for both the
parties to sign an agreement in consent. However if the parties do not intend to make any
contract, it does not harm the agency relationship in any way. In order to describe the
problems which are associated with the agency, it can be said that conflict of interest inherent
in any relationship where one of the party is found in act in a way that would be in the best of
interest of the other party. So, in simpler words the agency problem can be defined as the

FUNDAMENTALS OF FINANCE
conflict arising in between the management and the stakeholders of any organization, where
the manager acts so as to maximize its own benefits. The manager thereby takes and makes
the decisions so as to maximize the interest and the wealth of himself and not the
shareholders (Banerjee et al., 2018). However the problems associated with an agency can
resolved by keeping a full transparency in between the two parties, and by restricting the
capabilities of the agents.
Answer to question 4:
Role of the ethical behavior in the financial field plays a very significant factor in not
only striking a balance but also in maintaining, protecting and preserving the interests of the
stakeholders. There are a few typical standards which, are found in the ethical code is to act
with including the necessity to act with integrity and honesty. Also, avoiding conflicts related
to the interests in the professional relationships. Public trust is very important in any kind of
financial investments. A strong ethical behavior will certainly help people to foster trust of
the investors in the market thereby leading to robust global capital market which will
consequently be useful to entire financial market (Da Rin & Hellman, 2020).
Answer to question 5:
For any shareholder, the ultimate objective of any corporate activity is to obtain
maximum return from the kind of investments done by them. In order to obtain this, the
manager take into consideration the risk and timing associated with the expected earnings per
share so as to get the maximum returns from it. From the root, if a corporation is discussed, it
can be said that the shareholders are the ones owning it who own the shares of any particular
company and they are ones entitled to the profits related to it even if the enterprise is a one
person shop. In any capitalist society the wealth of the shareholder is the ultimate goal of any
firm. Also, the maintenance of an ethical behavior in any organization is very essential for

FUNDAMENTALS OF FINANCE
running of any organization even though the only who gets benefitted is the shareholder
(Ayopo et al., 2016). It is significant to have an understanding that effective financial
decision making results in the overall benefit of the firm, so maximization of the value of the
firms is directly implied to maximize shareholders wealth as it is only represented as the
market price of the firm’s common stock.

FUNDAMENTALS OF FINANCE
References list:
Ahmed, S., Coulibaly, B., & Zlate, A. (2017). International financial spillovers to emerging
market economies: How important are economic fundamentals?. Journal of
International Money and Finance, 76, 133-152.
Ayopo, B. A., Isola, L. A., & Olukayode, S. R. (2016). Stock market volatility: Does our
fundamentals matter. Ikonomicheski Izsledvania, 25(3), 33-42.
Banerjee, S., Davis, J., & Gondhi, N. (2018). When transparency improves, must prices
reflect fundamentals better?. The Review of Financial Studies, 31(6), 2377-2414.
Da Rin, M., & Hellman, T. (2020). Fundamentals of Entrepreneurial Finance. Oxford
University Press.
Hoyle, J. B., Schaefer, T. F., & Doupnik, T. S. (2018). Fundamentals of advanced
accounting. McGraw-Hill Education.
Khan, A. (2019). Fundamentals of Public Budgeting and Finance. Springer Nature.’