Can anyone help me with these Finance questions?

Question

Briefly explain how foreign economies can impact the profitability of domestic corporations.

What are stock options and how are they used by management to compensate managers?

Briefly describe dividend reinvestment plans.

Answer 1

Foreign economies - In our global business environment, most companies have suppliers, distributors, and manufacturing plants in other countries.  Fluctuations in the value of the dollar affect profitability.  If the dollar is weak, supplies from foreign suppliers are more expensive driving costs up, but the products we sell abroad are cheaper to buy so sales go up.  Also, companies have to factor exchange rates into their business plans.  Countries with strong economies become more promising markets.  So, there are many ways in which foreign economies impact profitability.

Stock options are a form of compensation that many companies use to reward top performers and encourage them to stay with the company and work hard for company success.  The company grants the recipient the right to buy a certain number of shares at today's stock price any time in a specified period, like 10 years.  So, if the option grants 100 shares at $30/share, and the recipient exercises the options when the price is $50/share, he gets 100 X ($50-30) or $2,000.

Dividend reinvestment means that, instead of sending a check for the dividend amount, the company automatically purchases stock on behalf of the stockholder in the amount of the dividend.  The stockholder then does not have to pay income tax on the dividends.