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International Financial Market, Research Paper Example

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Research Paper

Acme has the decision to merge with one of two firms: 1) JEL- a firm based in France (a member of the EU) that also uses the Euro as the main currency;2) DBC- a firm that has headquarters in Sweden that does not use the Euro.  Although it is difficult to perform this analysis with the current tumult in the EU, I would suggest the firm merge with DBC- a firm that is based in Sweden and not in the EU.  DBC is the best decision for a number of reasons.

First, Acme does not want to acquire a firm in the current anarchy that is EU currency and economic policy.  The Euro, although at a relatively cheap level (historically) is undergoing unprecedented volatility- it may even break up over the short-term (Economist, 2011).  Acme does not want to conduct a M&A transaction in an EU country at this time- not only might the final purchase price be substantially different when closing, but also Acme would need to undergo substantial contingency planning immediately before and after the process.

The other advantages of the transaction are connected to the business environment of Sweden.  Acme will be able to access European Union countries via the same common trade and customs policy that is available in the EU, without entering the current maelstrom (Government of Sweden, 2010).  Second, Sweden boasts a stable macroeconomic environment and currency.  Sweden, although undergoing a bank crisis in the 1990s, has shored up its domestic and fiscal finances- the country boasts one of the best regional growth rates during the crisis (Statistics of Sweden, 2010).  In addition, the Krona is one of the least volatile currencies in Europe.

There is one main disadvantage to locating in Sweden: taxes. Although Sweden boasts a marginally higher tax rate than other European nations,  the fiscal soundness of the country’s finances more than make up for this fact.

References

Economist. (2011).  Costs of break-up: after the fall.  Available at: http://www.economist.com/node/21529046.

Government of Sweden.  (2009). Sweden’s trade policy.  http://www.regeringen.se/sb/d/3086/a/118563.

Statistics of Sweden. (2010). Historically high figures in 2010.  Available at: http://www.scb.se/Pages/PressRelease____310265.aspx.

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