Financial Accounting Questions - Assignment Example

Answering Questions about Financial Accounting Answering Questions about Financial Accounting Q The financing period is a time that the company has before the payments of current liabilities become due. The current liabilities are those loans that have to be paid off within one year. Nevertheless, the company may have a negative financing period, if it has failed to clear the payment in time and the greater value of negative financing period means that the company is delaying the payment even further.

The debtors often provide incentive to the companies by offering them a discount in case of the early payment whereas, they tend to charge interest when the company does not make payments in time (Ho & Lee, 1986). Q.2 The international financial market is closely related to the very important and valuable concept of exchange rate. The exchange rate is basically establishes a relationship between currencies (Meese & Rogofp, 1988). If Dollar is dropping against Euro then, the trade-man should opt for receiving payments in Euros because it is more stable of the two involved currencies.

Additionally, the seller will have the option of converting Euros into Dollars at a later stage in order to make a capital gain due to increasing disparity between the two currencies. In short, by delaying the conversion the seller can make more dollars against the same amount of Euros. Q.3 The company’s management has the ultimate responsibility and duty to safeguard the company’s assets because they are hired to do so by shareholders who do not have the required expertise to manage their business on their own.

References Ho, T., & Lee, S. (1986). Term Structure Movements and Pricing Interest Rate Contingent Claims. The Journal of Finance Vol 41 (5) , 1011–1029.Meese, R., & Rogofp, K. (1988). Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period. The Journal of Finance Vol 43 (4) , 933–948.