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3 Cards in this Set
- Front
- Back
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Acquisition by stock |
Can be effected when management and the board of director are hostile to the combination, and does not require a formal vote of the firm shareholders. Leveraged Recapitalization- A company obtains a substantial new amount of new debt and uses the funds to pay cash dividends. Divestiture-Sale of an operating unit of a firm to a third party. Spin off- creation of a new separate entity with new shares distributed on a peo rata basis to existing shareholders. Equity carve out- Sale of a portion of the firm through a public offering. |
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Exchange Rates |
Spot Rate- Number of units of a foreign currency that can be received today in exchange for a single unit of the domestic currency. Forward Rate- Number of units of a foreign currency that can be received in exchange for a single unit of the domestic currency at some definite date in the future. Calculation forward premium or discount= Forward Rate- Spot Rate/ Spot Rate X Days in a Year / Days in Forward Period. Cross Rate- When 2 currencies are not stated in terms of each other. The exchange must be valued in a third currency, very often US dollar. Cross Rate Formula= Domestic currency per US dollar / Foreign currency per US dollar. Balance of Trade- Difference between imports and exports of goods and service over a given period.
Risk of Exchange Fluctuations- A company has transaction exposure if its payables are denominated in a foreign currency. Hedging a Foreign Denominated Receivable- When the downside risk is that the foreign currency will depreciate by the settlement date, the hedge is to sell foreign currency forward to lock in a definite price. Hedging a Foreign Denominated Payable- When the downsize risk is that the foreign currency will appreciate by the settlement date, the hedge is to purchase the foreign currency forward to lock a definite price. Forward Contract- A long term tool for mitigating exchange rate risk, only available for large corporations that have close relationship with the bank.
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Factors Affecting Rates |
A) Trade Relate Factors a) Inflation b) Relative Income levels c) Government intervention
B) Financial Factors a) Interest rates b) Ease of capital flow |
