Question

What is the importance of knowing the scope of the foreign exchange market when studying corporate finances?

Why are corporations implementing fusion strategies?

Answer 1

1. The foreign exchange markets are especially important when the firm operates in multiple geographies. With most businesses being multinational, the foreign exchange markets are used to hedge currency losses and also to get tax benefits. If a company operates in multiple countries and is based out of the US, then all its profits will be dollar denominates. These profits can fluctuate based on the currency movement between the US dollar and the local currency of the foreign country. Hence the scope of foreign exchange markets when studying corporate finance is important.

2. A fusion strategy means a strategic alliance with another company in the same business have a similar target market and customer base. Through the fusion strategy, the competition can be reduced and the joint entity can gain a larger market share and dominate the business and ultimately generate higher profits for both businesses entering into a fusion strategy.