Finance
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Could you provide your feedback to these International Finance questions? Please provide your feedback within 200 words or less. Thank you.
1. In the 1990s it became popular to reduce cash balances as low as possible. In fact some companies boasted they actually ran on a negative cash basis. In other words, their cash on the balance sheet was actually a negative number! The theory was that companies should work all their assets as hard as possible. When it came to cash, any balance beyond the bare necessity for working capital needs should be invested into company operations to expand return on investment. What is your opinion of this philosophy? How does this approach work in a recession or a market share war?
2. In recessions often companies ask their treasurers to increase investment yields in order to improve profitability and counter operating losses. What are the potential consequences of this practice? If you were the treasurer and the CFO asked you to invest in derivatives or other high-risk instruments, how would you respond?
3. Which do you favor: metal backed currency or fiat currency? Why? How do you respond to the weaknesses inherent in your preference?
4. What does LIBOR stand for? How is it calculated? Who uses LIBOR and what is an example of how it is used in the world financial system?
5. Evaluate how the business policies of a firm affect accounts receivable and inventories
6. Different risk free rates were used for analyzing the two companies. What is your opinion of this approach?
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Solution Summary
This solution discussed the recession, currency, LIBOR, accounts receivable and rates.
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1. In the 1990s it became popular to reduce cash balances as low as possible. In fact some companies boasted they actually ran on a negative cash basis. In other words, their cash on the balance sheet was actually a negative number! The theory was that companies should work all their assets as hard as possible. When it came to cash, any balance beyond the bare necessity for working capital needs should be invested into company operations to expand return on investment. What is your opinion of this philosophy? How does this approach work in a recession or a market share war?
I agree that the return of investment would do well if everything was invested within a company in order for it to continue to grow on a regular basis financially. This works well in a recession because they are not losing money but gaining it back by doing excellent customer service, and to minimize as much risk as possible in order for them to have as much success as possible. I have seen this occur with Scentsy. Management invests in the people and the product and as a result they are flourishing. Through these efforts, they have continued to have successes that other companies cannot compare because of investing in the market through stocks and bonds, which have caused them to go bankrupt or to ask the government for unnecessary money. Regardless, Scentsy is a success, and they are making trends that other companies want to follow because of their hard work.
2. In ...
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