Financial Management

1. Exchange Rates

A low exchange rate decreases the purchasing power of income and capital gains derived from returns. High exchange rates obviously do the opposite. In addition, the exchange rate influences other income factors such as interest rates, inflation and capital gains from securities. Interest rates, inflation, deficits, and the political climate are all factors in this process with other countries.

2. The book value per share of common stock can change over time. This is the product of earnings minus dividends. Depending on the company's financial position this can certainly fluctuate. The better the company is doing the more the book value will be and vise versa.

3. M&A

a. Operational synergies in a strategic merger involve the mutual benefit of two firms working together with their strengths and weakness balancing each other. Managerial synergies have to do with the two different managing strategies of the firms, where they compliment each other and combined make a better whole. Financial synergies have to do with joining in less volatile cash flows, lower default risk, and a lower cost of capital.

b. A merger may not occur with there is an overestimate of synergies, culture clashes, and lack of knowledge of the other partner. Mergers are sometimes very beneficial. However, as history suggests, there are also disasterous mergers. Examples include: New York Central and Pennsylvania Railroad, Quaker Oats and Snapple, and Time Warner and AOL.

4. Failures

Poor management of cash flow, lack of management control, loss of main trade accounts, and inadequate financing are all major reasons businesses fail. Having problems and substantial debt owed to creditors is the main reason for business failure. Failing management control by way of no clear business plan, failure to understand markets and costs, and irrational spending decisions. Losing main sources of income is also a reason for business failures. If you can cut overhead to make up for this loss you can make smart decisions to compensate. However, some businesses give out large discounts and loose conditions in order to increase sales. However, this still kills cash flow and causes problems with debts owed.