Finance Final

Front 1

Merger

Back 1

When a corporation buys another. Example is AOL acquiring Time Warner

Front 2

Horizontal Merger

Back 2

Acquiring competitors

Front 3

Vertical Merger

Back 3

Acquisition of buyers/sellers of goods

Front 4

Synergy

Back 4

The whole is greater than the sum of the parts

Front 5

What is the main emphasis when buying a company for a stock-for-stock exchange?

Back 5

Earnings per share impact of exchanging securities and ultimately market valuation of shares.

Front 6

What are two primary concerns of the shareholders of the acquired company?

Back 6

Initial price paid for shares and outlook of acquiring firm.

Front 7

What happens in a traditional, friendly, negotiated merger?

Back 7

Discuss product lines, quality of assets, future growth

Front 8

What is a hostile takeover tender offer?

Back 8

Company attempts to acquire another against it's will.

Front 9

List some ways a company can avoid a takeover.

Back 9

White knight (third firm). Move to states with tough prenotification/protection. buy portions of stock to restrict available stock. Increase dividends. Buy other companies to increase size. Avoid large cash balances. poison pill.

Front 10

Are most merger candidates acquired at their current market value?

Back 10

No. 40 to 60% or more is paid over the premerger price of acquired company.

Front 11

What is a merger premium?

Back 11

The difference between the actual cost for acquiring a target firm versus the estimate made of its value before the acquisition.

Front 12

How does a two-step buyout occur?

Back 12

1. Offer high cash price for 51% of shares outstanding.
2. Offer second lower price paid later in cash, stock, or bonds.

Front 13

What two purposes does the two-step buyout accomplish?

Back 13

Provides strong inducement to stockholders and acquiring company pays lower value than single offer.

Front 14

Multinational Corporation

Back 14

Any firm doing business across it's national borders

Front 15

Exporter

Back 15

Produce domestically then export internationally. Least risky because it reaps benefits without long term investment to foreign country.

Front 16

Licensing Agreement

Back 16

Export technology to foreign partner rather than product.

Front 17

Joint Venture

Back 17

Establish joint venture with foreign manufacturer.

Front 18

Fully Owned Foreign Subsidiary

Back 18

Start business in foreign country

Front 19

Exchange Rate

Back 19

Relationship between two values of currency

Front 20

Inflation Rate

Back 20

A general increase in prices and fall in the purchasing value of money.

Front 21

Interest Rates

Back 21

When inflation rate and risk are the same, companies rely on interest rate.

Front 22

Balance of Payments

Back 22

System of gov't accounts that catalogs the flow of economic transactions between the residents of other countries.

Front 23

Spot Rate

Back 23

Exchange rate at which currency is traded for immediate delivery

Front 24

Forward rate

Back 24

Exchange rate for future delivery.

Front 25

Cross Rate

Back 25

Exchange rate for currencies other than the dollar

Front 26

Managing Foreign Exchange Rate

Back 26

Possibility of a drop in revenue or an increase in cost in an international transaction due to change in foreign exchange rates

Front 27

Translation Exposure

Back 27

Foreign assets and liabilities are exposed to losses and gains due to changing exchange rates.

Front 28

Transaction exposure

Back 28

Foreign exchange gains and losses resulting from international transactions

Front 29

Eximbank

Back 29

Lends money to foreign purchasers of US goods such as aircraft, electrical, equipment, machinery

Front 30

Parallel Loan

Back 30

Find similar transactions between foreign domestic relationships to avoid exchange rates.

Front 31

Fronting Loan

Back 31

Parents loan to its foreign subsidiary channeled through a financial intermediary.

Front 32

Eurodollar loans

Back 32

US dollars deposited in foreign banks.

Front 33

LIBOR

Back 33

How interbank loans are priced.

Front 34

Eurobond Market

Back 34

Sold in several national capital markets but denominated in a currency from that of the nation the bonds are issued in.

Front 35

International Equity Markets

Back 35

Selling stock to residents of foreign countries.

Front 36

International Finance Corporation

Back 36

Unit of the World Bank Group. Firms may sell partial ownership to IFC to raise equity capital

Front 37

Risk

Back 37

variability of possible outcomes from a given investment. measured not only in terms of losses but also in terms of uncertainty