SU6: Corp. Restr. and Intl Finance Flashcards Preview

CMA Exam Part 2 > SU6: Corp. Restr. and Intl Finance > Flashcards

Flashcards in SU6: Corp. Restr. and Intl Finance Deck (54)
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1
Q

consolidation

A

similar to a merger, but a new entity is formed and neither of the merging entities survives.

2
Q

horizontal merger

A

occurs when two firms in the same line of business combine.

3
Q

vertical merger

A

combines a firm with one of its suppliers or customers.

4
Q

conglomerate merger

A

involves two unrelated firms in different industries.

5
Q

tender offer

A

a general invitation by an individual or a corporation to all shareholders of another corporation to tender their shares for a specified price.

6
Q

Greenmail

A

If management and the board are opposed to the tender offer, the potential acquirer is offered the opportunity to sell his or her already acquired shares back to the corporation at an amount substantially above market value (i.e., paying greenmail).

7
Q

Fair Price Provisions

A

Warrants are issued to shareholders that permit purchase of stock at a small percentage (often half) of market price in the event of a takeover attempt.

8
Q

Leveraged Recapitalization

A

Leveraged recapitalization, or restructuring, occurs when a company obtains a substantial amount of new debt and uses the funds to pay a cash dividend

9
Q

LBO

A

leveraged buyout is a financing technique by which a company is purchased using very little equity. The cash-offer price is financed with large amounts of debt. An LBO is often used when a company is sold to management or some other group of employees, but it is also used in hostile takeovers.

10
Q

Flip-over rights

A

The charter of a target corporation may provide for its shareholders to acquire in exchange for their stock (in the target) a relatively greater interest (e.g., twice the shares of stock of equivalent value) in an acquiring entity.

11
Q

Flip-in rights

A

Acquisition of more than a specified ownership interest (e.g., 25%) in the target corporation permits shareholders, except for the acquirer, to purchase additional shares at a reduced price.

12
Q

Tracking stock

A

stock issued in a division or segment of a parent entity. This provides investors with the opportunity to invest in only a portion of the entity. However, they have no claims on the assets of the division or segment. Rather, the parent entity maintains control over the division or segment.
Tax benefits may arise from a combination.

13
Q

split-up

A

an entity splits into two or more entities. Shares in the original entity are exchanged for shares in the new entities.

14
Q

spin-off

A

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.

15
Q

equity carve-out

A

the sale of a portion of the firm through a public offering. It provides a way to quickly raise capital and bring in new management while still maintaining control.

16
Q

Fixed Exchange Rate

A

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. Pros - predictable, cons - govt can manipulate

17
Q

Freely Floating Exchange Rate

A

government steps aside and allows exchange rates to be determined entirely by the market forces of supply and demand. Pros - less manipulation. Cons - a country is vulnerable to economic conditions in other countries

18
Q

Managed Exhange Rate

A

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

19
Q

Pegged Exchange Rate System

A

government fixes the rate of exchange for its currency with respect to another country’s currency (or to a “basket” of several currencies)

20
Q

Spot rate

A

the exchange rate as of right now

21
Q

Forward rate

A

the exchange rate as of a future period

22
Q

Forward premium

A

when the forward rate is greater than the spot rate

23
Q

Forward discount

A

when the forward rate is less than the spot rate

24
Q

Calculation of Forward Premium/Discount

A

[(Forward Rate - Spot Rate)/Spot rate] x (Days in year / days in forward period)

25
Q

Cross rate

A

domestic currency per usd/foreign currency per usd

26
Q

Factors affecting exchange rates

A

Trade: inflation, income, govt intervention
Financial: relative int, ease of capital

27
Q

ADR

A

American Depository Receipts - ownership rights in foreign corporations. Allows Americans to participate i foreign stock markets.

28
Q

Forfaiting

A

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.

29
Q

Sight Draft or Bill of Exchange

A

exporter uses a sight draft to obtain payment from an importer. The exporter holds title to the shipped goods until the importer has received the shipment and paid for it. The sight draft and shipping documents are sent to the importer’s bank, which remits payment to the exporter.

30
Q

Open Account Sale

A

A sale on open-account is risky because the exporter merely ships the goods to the importer, who signs an invoice acknowledging receipt. Thus, the exporter is not assured of payment if the importer defaults. Such an arrangement is most likely if the parties have previously transacted business.

31
Q

An exporter delivers goods to a retailer for sale to the public. If the exporter is paid only after sale to third parties, the arrangement is a(n)

A

Consignment

32
Q

An attempt to replace management in which a group of shareholders try to solicit votes is a

A

Proxy Fight

33
Q

If spot rate is greater than forward rate, then the currency is quoted at a…

A

discount

34
Q

The three generally acknowledged theories regarding currency exchange rates suggest all of the following about high-inflation currencies

A

The usually trade at large forward discounts
Their economies will have high interest rates
They will weaken over time

35
Q

An overvalued foreign currency exchange rate represents a <> on exports and a <> on imports

A

tax, subsidy

36
Q

Cross-border factoring involves

A

Using a network of factors in other countries.

37
Q

Assuming exchange rates are allowed to fluctuate freely list one factor that would cause a nations currency to appreciate in the foreign exchange market.

A

A slower rate of growth in income which causes imports to lag behind exports.

38
Q

If the growth of a country’s national income is more rapid than other countries’ national income, its currency is likely to <>

A

Depreciate

39
Q

The synergy of a business combination can be determined by

A

Using the risk adjusted discount rate to discount the incremental cash flows of the newly-formed entity.

40
Q

Trade Acceptance

A

is a time draft accepted by a trader of goods or a merchant. It is accepted only by the drawee and is not countersigned by the drawee’s bank. It is a negotiable instrument similar to a banker’s acceptance except it is drawn on and accepted by a buyer and not a bank

41
Q

Time Draft

A

a form of payment that is guaranteed by an issuing bank but is not payable in full until a specified amount of time after it is received and accepted.

42
Q

Sight Draft or Bill of Exchange

A

A sight draft is a type of bill of exchange, in which the exporter holds the title to the transported goods until the importer receives and pays for them. … Unlike a time draft, which allows for a short-term delay in payment after the importer receives the goods, a sight draft is payable immediately

43
Q

The purchasing-power parity exchange rate

A

Holds constant the relative price levels in two countries when measured in a common currency.

44
Q

What is the effect on prices of U.S. imports and exports when the dollar depreciates

A

Import prices will increase and export prices will decrease.

45
Q

The economic effects of a change in foreign exchange rates on a relatively self-contained and integrated operation within a foreign country relate to the net investment by the reporting enterprise in that operation. Consequently, translation adjustments that arise from the consolidation of that operation

A

Do not directly affect cash flows and should not be reflected in income.

46
Q

If consumers in Japan decide they would like to increase their purchases of consumer products made in the United States, in foreign currency markets there will be a tendency for the demand for <> to <>

A

dollars, increase

47
Q

If the U.S. dollar declines in value relative to the currencies of many of the U.S. trading partners. then

A

US Exports will tend to increase.

48
Q

Decline in the value of a domestic currency <> prices of domestic goods and will tend to <> <>ports

A

reduces, increase exports

49
Q

Decline in the value of a domestic currency results in <> priced foreign goods and <>ports will tend to <>

A

higher, imports decrease

50
Q

Describe a merger

A

The surviving company is one of the two combining companies

51
Q

Describe a divestiture

A

A large U.S. company recently set up a new corporation based on the assets from one of its divisions. The stock of the new corporation was titled to the stockholders of the original firm.

52
Q

List the effects of inflation on a countrys currency

A

The currency of a country with a falling inflation rate retains more purchasing power. Demand for a currenty with increasing purchasing power will increase.

53
Q

T/F - a Merger involves the absorption of one firm by another

A

T

54
Q

T/F - a Merger involves approval by shareholders of each firm

A

T