a) Agency problem occurs when managers or management take decisions that are not consistent with the objectives of shareholder value maximization. Contributors to this agency problem are: divergence of ownership and control, goals of managers differing from those of shareholders because of personal interest, and asymmetry of information between managers and shareholders. (2 marks)

b) The following can be used to manage or resolve the agency problem:

• Use of performance-related reward scheme: Pay and bonuses based on satisfactory performance of managers in delivering shareholder value.
• Executive share option scheme: Managers are allowed to buy shares of the company at a fixed price within a particular period. This encourages goal congruence between managers and shareholders.
• Threat of firing or dismissal: Managers or directors can be forced out by the shareholders if they are unhappy with their performance.
• Key Market participants like institutional investors such as fund managers,
  pension houses, insurance companies who have larger shareholdings can
  exercise that to push managers to perform or be voted out.
   Monitoring and control of managers performance through the use of external
  and internal auditors, Board committees and review consultants.

c) The following are other objectives:

• Staff motivation
• Top service to customers
• Growth
• Market leadership in research and development
• Social responsibility
• Environmental sustainability
• Diversification purposes etc.

d) Managing conflict of interest:

• Alignment of management goals with shareholder value maximization.
• Corporate governance controls, like shareholder authority to replace directors.
• Provide a framework for reviewing and modernizing existing policies. (6 marks)

e) Internal hedging methods include:

• Matching assets and liabilities in the same currency to manage translation risk.
• Invoicing in domestic currency to manage transaction risk.
• Leading and lagging payments based on expected exchange rate movements. (6 marks)