Define the term “Financial Engineering” and explain 3 main components of financial engineering.

      

Define the term “Financial Engineering” and explain 3 main components of financial engineering.

  

Answers


Kavungya
Financial Engineering
Design, development and implementation of innovative financial instruments and processes and the
formulation of creative solutions to problems in finance.

It is concerned with three critical issues:
Securities innovations which would add value to the firm and shareholders e.g issue a security
which increases the present value of tax shields available to the issues without increasing the
investors tax liability.
Innovative financial processes e.g on-line banking, use of central depositing system (CDS) in stock
market trading to reduce transaction costs etc.
Creative strategies to corporate finance problem.
Involves the use of tax-effective cash management strategies and corporate restructuring due
to internal and external factors e.g leveraged buyout, sale and lease back, outsourcing of
financial services, project finance etc.
Kavungya answered the question on April 20, 2021 at 09:53


Next: MK Ltd is comprised of 4 major projects, details of which as follows: The risk free rate is 5% and the market return is 14% p.a....
Previous: Explain the factors responsible for financial innovations.

View More CPA Advanced Financial Management Questions and Answers | Return to Questions Index


Exams With Marking Schemes

Related Questions