Unit 8: Corporate Restructuring, International Trade, & Exchange Rates Flashcards
What is a merger?
A merger is a business transaction in which an acquiring firm absorbs a second firm, and the acquiring firm remains in business as a combination of the two merged firms.
What is an acquisition?
An acquisition is the purchase of all of another firm’s assets or a controlling interest in its stock.
What is a conglomerate merger?
A conglomerate merger involves two unrelated firms in different industries.
What is the difference between a horizontal merger and a vertical merger?
A horizontal merger occurs when two firms in the same line of business combine. A vertical merger combines a firm with one of its suppliers or customers.
What are golden parachutes?
Golden parachutes are provisions passed by a board of directors requiring large payments to specified executives if the executives are fired.
Describe a spin-off.
A spin-off is the creation of a new separate entity from another entity, with the new entity’s shares distributed on a pro rata basis to existing shareholders of the parent entity.
What is a tender offer?
A tender offer is a general invitation by an individual or a corporation to all shareholders of another corporation to tender their shares for a specified price.
What is synergy?
Synergy exists if the value of the combined firm exceeds the sum of the values of the separate firms.
Describe a direct foreign investment.
A direct foreign investment involves buying equipment and buildings for a new company in a foreign nation.
What is cross-border factoring?
Under cross-border factoring, a factor purchases receivables and assumes the risk of collection.
What are banker’s acceptances?
Banker’s acceptances are time drafts drawn on deposits in a bank. They are short-term credit investments created by a nonfinancial firm with payment guaranteed (accepted) by a bank. These are essentially commercial drafts. A draft contains an order by the drawer to the drawee to pay a fixed sum of money to the payee.
What are American Depository Receipts (ADRs)?
Ownership rights in foreign corporations are sometimes evidenced by American Depository Receipts (ADRs). The foreign stocks are deposited with a large U.S. bank, which in turn issues ADRs representing ownership in the foreign shares. The ADR shares then trade on a U.S. stock exchange, whereas the company’s original shares trade in foreign stock markets. ADRs allow Americans to invest abroad and foreigners to raise capital in the U.S.
What is forfaiting?
Forfaiting is a form of factoring that involves the sale by exporters of large, medium- to long-term receivables to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.
Describe a fixed exchange rate system.
In a fixed exchange rate system, the value of a country’s currency in relation to another country’s currency is either fixed or allowed to fluctuate only within a very narrow range.
Describe a managed float exchange rate system.
In a managed float exchange rate system, the government allows market forces to determine exchange rates until they move too far in one direction or another. The government will then intervene to maintain the currency within the broad range considered appropriate.
