Ch 36: Capital management

Question 1

What does capital management of a financial benefit provider involve?`

Answer 1

1) Ensuring sufficient solvency and cashflow to meet existing liabilities and future growth aspirations (under all reasonable foreseeable circumstances).
2) Maximising the reported profits (return on capital)

Question 2

Give the capital needs of individuals

Answer 2

1) Provide a cushion against unexpected events
2) Save for the future

Question 3

Give the capital needs of a company

Answer 3

1) Deal with the financial consequences of adverse events.
2) Provide a cushion against fluctuating trade volumes
3) Business expansion
4) Finance stock and work in progress
5) Obtain premises, hire staff, purchase equipment, start-up capital

Question 4

What characteristics of the business of financial service providers requires that they have more extensive needs for capital management?

Answer 4

The long-term nature of financial services products