Accounting for Managers Institution Affiliation Date:

Chapters Covered Chapter 20 Chapter 21

1. Name three industries in which mergers have been prominent Some of the industries where mergers are known to be important or leading include; Public utilities Telecommunications Pharmaceuticals There are some industries in the economy that are still leading in mergers. Mergers have remained important or prominent in these industries. One of the industries where mergers are known to prevail is in telecommunications. Another industry is that of public utilities. The third industry in which mergers are held with great significance is the pharmaceuticals. In these industries mergers between corporations are deemed important.

2. What is the difference between a merger and a consolidation? A merger is formed by two or more firms joining to form a single firm In a merger the final entity formed is one of the constituent firm A consolidation also results from two or more organizations joining but a new corporation is formed A merger and a consolidation might be mistaken to be similar because they involve two or more firms joining forces to be competitive in the economy. On the contrary, these two are different. A merger is formed by two or more corporations or organizations joining to form a single unit. The final entity or unit formed from the merger is one of the constituent organizations. On the other hand, a consolidation is also formed by two or more companies joining to form a single entity. The entity formed is a new corporation rather than a constituent organization. Thus, the difference between a merger and a consolidation is that, a merger results in the formation of a single entity that is also one of the constituent company involved in the merger, whereas a consolidation results in the formation of a new company.

Horizontal integration is known as the acquisition of competitors 3. What is the difference between horizontal integration and vertical integration? How does antitrust policy affect the nature of mergers? Horizontal integration is known as the acquisition of competitors Vertical integration is defined as the acquisition of sells or buys of products to an organization Antitrust policy prevents the elimination of competition Mergers can thus happen with corporations in allied fields rather than related Horizontal integration is defined as the acquisition or achievement of the competitors. When an organization or entity gets a hold of its competitors the result is a horizontal integration. On the other hand, the vertical integration results from an organization achieving the buys or sells of the products belonging to another entity. Thus, vertical integration is the acquisition of the buys and sells of products to another firm. The antitrust policy affects the nature of mergers in that it prevents the elimination of competition. Thus, mergers can occur with the corporations that are in allied fields and not in related fields.

Shareholder’s right plan such as buying additional company stocks 4. Suggest some ways in which firms have tried to avoid being part of a target takeover Shareholder’s right plan such as buying additional company stocks Making an acquisition that will make a takeover expensive Increase company debt to deter the individuals concerned about payment after a takeover Consider a strategic partner that can merge with the target organization to add its value Firms have tried utilizing various approaches as a means to avoid being part of a takeover. One of the ways that organizations utilize to escape target takeover is the shareholder’s right plan. Shareholders tend to buy additional company stocks in order to ensure that the raiders planning for a takeover do not have excess stocks that can give them the power to takeover a firm. The second approach that companies utilize is making an acquisition that will make a takeover appear expensive to the raiders. Also, some firms tend to increase their debt as a way of deterring the individuals planning for a takeover because they are likely to be concerned about the payment they have to make after the takeover. Another way of avoiding a target takeover for companies is looking for a strategic partner that can merge with the organization and add its value thus deter the raiders.

5. List the factors that affect the value of a currency in foreign exchange markets Factors that affect the value of currency in foreign exchange markets include; Interest rates Inflation rates Political stability and performance Government debt Recession Balance of payment Speculation Numerous factors affect the value of currency in the foreign exchange markets. Some of these factors include interest rates and inflation rate. A change in the rate of inflation and interest affects the currency value. A nation’s balance of payment is also another factor that can affect the value of currency. Government debt, political stability and performance also affect the currency value. Other factors that can affect currency value in a country are recession and speculation.

6. Differentiate between sport exchange rate and the forward exchange rate The primary difference is the time of delivering a commodity, currency and security The second difference is the time for paying for the three items For a sport rate the delivery and payment of the agreed commodity, security and currency is settled in a sport contract For a forward rate the delivery and payment is made at a future date The primary difference between sport exchange and forward exchange rate is the time taken to pay for a commodity, currency and security. Also, another difference between the sport and forward exchange rates is the time of delivering the currency, commodity and security. For instance, in the case of a sport rate, the delivery and payment of the agreed commodity, currency and security is settled at the sport contract, meaning payment and delivery is done at the time of agreement. On the other hand, for a forward rate, the delivery and payment of the commodity, security and currency is made at a later or future date.

7. What is meant by translation exposure in terms of foreign exchange risk It is the risk that an organization’s equities, liabilities and assets will change These items are at risk of changing due to changes in exchange rate It occurs when an organization exposes its liabilities, assets and equities in foreign currency Translation exposure is defined as the risk that an organization’s equities, assets and liabilities could change. The reason for the change in the organizations equities, assets and liabilities is due to a change in the exchange rate. Thus, a change in exchange rate could result in the company’s assets, liabilities and equities changing. Translation exposure occurs when an entity exposes its assets, liabilities and equities in the foreign currency. Once these items are exposed in foreign currency a change in exchange rate places them at risk of changing.

Conclusion Questions addressed are centered on mergers, exchange rate and takeover Organizations or businesses should be concerned about these factors Organizations should be in a position to deal with issues of mergers, takeovers and exchange rate The questions addressed are mainly centered on mergers, exchange rates and takeover. It is imperative for organizations or businesses to understand that these issues are important. Thus, entities should be concerned with the issues such as mergers, takeovers and exchange rates because they are significant for their operations. Also, organizations should be in a position to manage the issues of mergers, takeovers and exchange rates to ensure that they are not the cause of failure in the current markets.

References DePamphilis, D. (2011). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions. Burlington: Elsevier Science. Pandey, I. M. (2015). Financial management. New Delhi: Vikas Publishing House PVT LTD. Siddaiah, T. (2009). International financial management. Upper Saddle River, NJ: Pearson.