Summative Assessment 1 - Principles of Finance

Feb, 2021
1. How important is the role of finance and finance head in
an organization?

2. What factors might account for a small firm’s financial

volatility or stability

Factors that account for a small firm’s financial volatility or stability may vary depending on the type of
business, although some factors greatly affect most firms. Some of the factors include the state of the
economy, competition, taxation and government policies, inflation, etc. The state of the economy
greatly influences the financing decisions of a firm. When a country experiences an economic boom,
businesses are able to hire more employees, which in turn enables employees to spend their income
with other businesses, increasing profits for business owners. On the other hand, if the economy is not
in a good state, jobs are cut, and people are more likely to save, which can hinder businesses from
earning profit. Competition in business is the contest or rivalry among companies selling similar products
and targeting the same audience to get more sales, increase revenue, and gain more market share as
compared to others. Because of competition, consumers may prefer to choose alternatives, or buy from
other firms, which can have a negative effect on the firm’s financial stability. Furthermore, inflation can
also force small businesses to raise their prices, which can lead to a loss in customers.

3. Should policy makers focus merely on encouraging more

entrepreneurial activity that would promote financial
viability or should they focus on balancing prices, inflation
and monetary supply?

4. Are the monetary policies in the Philippines implemented

effectively in this time of pandemic? Support your answer.
5. How would you guarantee the authenticity of a paper
currency?