Which of the Following Actions Would Be Most Likely to Reduce

question 60

Multiple Choice

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

• A) Pay managers large cash salaries and give them no stock options.
• B) Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover.
• C) Beef up the restrictive covenants in the firm's debt agreements.
• D) Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm's stock.
• E) For a firm that compensates managers with stock options,reduce the time before options are vested,i.e. ,the time before options can be exercised and the shares that are received can be sold.

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Definitions:

Exchange Rate Risk

The risk that the value of an investment will decrease due to changes in the relative values of different currencies.

Transaction

An instance of buying or selling something; a business deal or action.

Japanese Yen

The official currency of Japan, widely used in international finance transactions.

U.S. Dollar

The official currency of the United States, widely used as a benchmark and reserve currency worldwide.