BBA VI - RESEARCH ASSIGNMENT

Name

ISHA SETH

Enrollment No. :

01815901713

Subject

International Business Management

Subject Code

BBA- 308

Semester

BBA VI

Batch

2013 2016

(Instructor: Ms. Deepali Kundara)

ASSIGNMENT QUESTION

Question 2
Write short notes on(a) Cross Border Merges and Acquisition.
(b) Role and Functions of IMF.

(a)

Cross Border Merges and Acquisition.

Cross-border mergers and acquisitions (M&As) have long been an important strategy to
expand abroad. Due to technological developments and globalization, M&As activity
sharply increased over the last two decades. They skyrocketed in the 1990s reaching a
pick in 2000 with the booming stock markets and the larger degree of financial
liberalization worldwide, declined sharply in 2001 and 2002 and rebounded again with
new developments in the world economy after 2003 (see Figures 1 to 3 in the appendix,
section 7.1).1 Traditionally, developed countries, and in particular the developed
countries of the European Union (EU15) and the United States, have been the largest
acquirer and target countries of M&As. Over the 2003-2005 period, developed countries
accounted for 85% of the USD 465 billion cross-border M&As, 47% and 23% of which
respectively pertain EU15 and US firms either as acquirer or as target countries
(UNCTAD (2006)). Despite this increased importance of cross-border M&As, which
constitute by far the largest share of foreign direct investment, the determinants
underlying such activities remain unclear.2 The only empirical papers - we are aware of are Di Giovanni (2005) and Head and Ries (2007), who using respectively Tobit and the
Poisson maximum likelihood method, find cultural and geographical proximity to be
important determinants of aggregate MAs; Berger at al. (2004) who using Tobit look at
determinants of cross-border transaction values in the financial sector; while Goerg et al
(2006) and Focarelli and Pozzolo (2008) focus on the number of cross-border deals using
the negative binomial regression model, respectively for M&As in manufacturing sectors
and those in banking and insurance. In this paper, we focus on the role of institutional and
financial developments on cross-border M&As related to manufacturing and service
sectors with a special attention to the role played by European integration using Poisson
maximum likelihood method. The institutional environment is of a particular interest for
cross-border M&As since they are affected by various regulations at the country level (or
regional level) such as competition policy, corporate and capital taxes, various
restrictions to capital movements across borders, protection of certain industries.
Cross-border mergers and acquisitions (M&As) have rapidly increased in recent years,
accelerating the globalisation of industry and reshaping industrial structure at the

international level. In the 1990s, there has been a marked tendency in foreign direct
investment towards mergers and acquisitions rather then greenfield investment. The value
of cross-border M&As grew more than six-fold in the period 1991-98, with an increasing
tendency towards very large-scale unions. Although non-OECD countries have increased
their share of cross-border mergers and acquisitions, they primarily involve OECD
countries and firms. M&As are taking place in a range of industries including mature
manufacturing sectors, hightechnology fields and service sectors and reflect a need to
restructure and strengthen global competitiveness in core businesses.
The driving forces underlying the trend to cross-border M&As are complex and vary by
sector. Prolonged economic growth in countries such as the United States increases the
capital available for industrial purchases abroad and attracts more inward investment,
while the globalisation of financial markets is also a factor. In some mature industrial
sectors, international competition and market pressures due to excess capacity and falling
demand are driving restructuring. Technological change, particularly in information
technology, facilitates the international expansion of firms, which are also seeking to
capture new market opportunities in fast-changing technologies and to pool research and
development costs. Enterprises increasingly seek to exploit intangible assets
technology, human resources, brand names through geographical diversification and
acquisition of complementary assets in other countries. Government policies such as
investment liberalisation, privatisation and regulatory reform are also increasing the
number of and access to industrial targets for acquisition.
Cross-border mergers and acquisitions can yield dividends in terms of company
performance and profits as well as benefits for home and host countries when successful
industrial restructuring leads to greater efficiency without undue market concentration.
Benefits from such M&As are increasingly intangible and found in economy-wide
spillover effects. They can help revitalise ailing firms and local economies and create
jobs through the restructuring process, acquisition of technology and productivity growth.
Yet countries have differed widely in their openness to M&As involving foreign firms.
And in some cases, poorly functioning factor and product markets may impede the
realisation of the favourable impacts of M&As in terms of economic growth and job

creation. Government policies in areas such as investment, competition, labour and

technology need to promote sufficient flexibility to enable firms to engage in necessary
restructuring at the international level.

(b)

Role and Functions of IMF.

What The IMF does

1. Economic Surveillance. IMF produces reports on member countries economies and suggest
areas of weakness / possible danger. The idea is to work on crisis prevention by highlighting
areas of economic imbalance. A list of IMF reports on member countries are available at: IMF
Countries
2. Loans to Countrys with financial crisis. The IMF has $300 billion of loanable funds. This
comes from member countries who deposit a certain amount on joining. In times of financial /
economic crisis, the IMF may be willing to make available loans as part of a financial
readjustment.the IMF has arranged more than $180 billion in bailout packages since 1997.
3. Technical assistance and economic training. The IMF produce many reports and
publications. They can also offer support for local economies.

There are three general objectives of the IMF:

(i) The elimination or reduction of existing exchange controls,

(ii) The establishment and maintenance of currency convertibility with stable exchange rates, and

(iii) The widest extension of multi-lateral trade and payments.

The following are the major functions of the IMF:

1. It functions as a short-term credit institution.

2. It provides machinery for the orderly adjustments of exchange rates.
3. It is a reservoir of the currencies of all the member countries from which a borrower nation
can borrow the currency of other nations.
4. It is a sort of lending institution in foreign exchange. However, it grants loans for financing
current transactions only and not capital transactions.
5. It also provides machinery for altering sometimes the par value of the currency of a member
country. In this way, it tries to provide for an orderly adjustment of exchange rates, which will
improve the long-term balance of payments position of member countries.
6. It also provides machinery for international consultations.
7.
IMF
8.

Merchant
main

function
Helpful

is

Of
to
For

purchase

and
The

Currencies
sell

the

member

Debtor

countries
Countries

:currencies.
:-

If any country is facing adverse balance of payment and facing the difficulty to get the currency
of creditor country, it can get short term credit from the fund to clear the debt. The IMF allows
the debtor country to purchase foreign currency in exchange for its own currency upto 75% of its
quota plus an addition 25% each year. The maximum limit of the quota is 200% in special
circumstances.

9.

Declared

Of

Scarce

Currency

:-

If the demand of any particular country currency increases and its stock with the fund falls below
75% of its quota, the IMF can declare it scare. But IMF also tries to increase its supply by these
methods.
1.

Purchasing

:-

IMF

purchases

the

scare

currency

by

gold.

2. Borrowing :- IMF borrows from those countries scare currency who has surplus amount.
3. Permission :- IMF allows the debtor countries to impose restrictions on the imports of
creditor

country.

10. To promote exchange stability :- The main aim of IMF is to promote exchange stability
among the member countries. So it advises the member countries to conduct exchange
transactions at agreed rates. On the other hand one country can change the parity of the currency
without the consent of the IMF but it should not be more than 10%. If the changes are on large
scale and IMF feels that according the circumstances of the country these are essential then it
allows. The country can not change the exchange rate if IMF does not allow.
11. Temporary aid for the devalued currency :- When the devaluation policy is indispensable or
any country then IMF provides loan to correct the balance of payment of that country.
12. To avoid exchange depreciation :- IMF is very useful to avoid the competitive exchange
depreciation which took place before world war 2.