Corporate restructuring, international trade, and exchange rates

Question 1

three common types of mergers

Answer 1

-horizontal: occurs when two firms in the same line of business combine
-vertical merger: combines a firm with one of its suppliers or customers
-conglomerate merger: involves two unrelated firms in different industries

Question 2

An overvalued foreign currency exchange rate represents

Answer 2

a tax on exports and a subsidy on imports

If a country’s currency is strong, its goods and services are more expensive to foreign consumers. At the same time, foreign goods become relatively more affordable to domestic consumers.

Question 3

a company has a foreign-currency denominated trade payable, due in 60 days. In order to eliminate the foreign currency exchange-rate risk associated with the payable, the company could

Answer 3

buy foreign currency forward today

The company can arrange to purchase the foreign currency today rather than in 60 days by buying the currency in the forward market. This hedging transaction will eliminate the exchange-rate risk associated with the trade payable.

Question 4

What is a benefit to the home country of international diversification by multinational companies

Answer 4

a better international monetary system

A better international monetary system, because of greater participation by many users, is a benefit of international diversification.

Question 5

What are the benefits of a multinational company to its host country

Answer 5

-new investment of capital, technology, and management abilities
-improvement in output and efficiency
-stimulation of competition, increased tax revenues, and a higher standard of living