Final answer:
The primary motivation for forming a financial holding company is to engage in a wider range of activities not allowed for a traditional bank holding company, thus increasing flexibility and potentially reducing business risks. Shareholders elect company managers through their voting rights, and banks serve as financial intermediaries. When raising capital, the choice between borrowing and issuing stock involves considering control, costs, and financial implications.
Step-by-step explanation:
The primary motivation today for forming a financial holding company is c. To engage in activities not permitted in a bank holding company. Financial holding companies allow for a wider range of business operations beyond traditional banking, which can include insurance, securities, and other financial services. This expansion of activities can result in diversification benefits, potentially reducing the risk of failures associated with being concentrated in solely traditional banking services. Moreover, being a financial holding company provides flexibility and the opportunity to branch into new revenue streams without being constrained by the stricter regulations that govern bank holding companies.
When shareholders own a company, they typically choose the company managers through a voting process, often at the company's annual general meeting (AGM). Each shareholder's vote is usually proportional to the number of shares they possess, providing them the capacity to influence the direction of the company by selecting its management team. Meanwhile, banks act as financial intermediaries by accepting deposits from savers and lending those funds to borrowers, thus facilitating the flow of money within the economy.
Regarding the choice between borrowing and issuing stock for raising capital, the decision should be based on the firm's financial situation, ownership preferences, and the cost of capital. Borrowing can be favorable if maintaining control is a priority and if the cost of debt is lower, while issuing stock can be attractive to avoid repayment obligations and interest costs, albeit at the expense of diluting ownership.