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In: Economics

In each of the following two scenarios, what type of transaction is involved? (spot exchange, contract,...

In each of the following two scenarios, what type of transaction is involved? (spot exchange, contract, or vertical integration). Explain your answer.

XYZ Corporation a big automobile company purchases Mich Tires, a local tire company.

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Q- What type of transaction is involved? (spot exchange, contract, or vertical integration). Explain your answer.

Answer: Contract.

Explanation: XYZ Corporation a big automobile company purchases Mich Tires, a local tire company. This transaction comes under Contract. Contract transaction refers to an agreement in written or oral form, where in two or more parties come to agree to perform a fixed job or work, which is favourable to both the parties under the agreement. Here in, XYZ corporation is purchasing tires from a local tire company Mich tires, and Mich tires is selling its tires to XYZ corporation. Thus, one party is engaged in selling and the other party is engaged in purchasing the product, therefore this transaction is a Contract.

It could not be spot exchange as in this, one currency is sold for another currency but not product and in this scenario same is not present. It could not be Vertical Integration as in this, a company has their own production plants and designated stores, which create, distribute and sell the products and in this scenario same is not present.

Rahul Sunny answered 8 months ago
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