Since Financial Investments Are Assets with a High Degree of Inherent

question 1

Essay

Since financial investments are assets with a high degree of inherent risk,companies must establish effective internal control over their investments.
a.Describe the functions that should be segregated to provide good internal control over financial investments.
b.Describe two other internal control policies that should be established for financial investments.

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Definitions:

Capital Budgeting

The process used by companies to evaluate and prioritize investments in long-term assets based on their potential to generate profit.

Cost of Capital

The rate of return a company must pay to its creditors and shareholders for the use of their capital.

Subjective Approaches

Methods or considerations based on personal opinions, interpretations, feelings, or judgments rather than objective facts or analysis.

Pure Play Approaches

Investment strategies that focus on companies that specialize in a particular product or service, excluding diversified or conglomerate firms.