Wednesday, September 21, 2005
FRB: Speech, Greenspan--Reflections on central banking--August 26, 2005
http://www.federalreserve.gov/BoardDocs/speeches/2005/20050826/default.htm
Friday, September 09, 2005
Thinking With Mergers and Acquisitions in terms of Foreign Exchange
FX Power Student center: "Mergers and Acquisitions
What are they?
� M&A Deals -> Average 1% Appreciation in Target's Currency
� Every $1 Billion Dollars -> 0.5% Positive Impact on Target's Currency
Mergers and acquisitions (M&A) involve the combining of two corporations or the acquisition of a part of a corporation by another corporation. Large cross border M&A activity of greater than US$500 million often has an impact on the Foreign Exchange market. A study done by the Bank for International Settlements (BIS) disclosed that large M&A deals cause the target corporation's domestic currency to appreciate 1%, on average, relative to that of the acquiring corporation. In fact, the report finds that in the period immediately after the deal is announced, there is generally a strong upward movement in the target corporation's domestic currency (relative to the acquirer's currency). Fifty days after the announcement, the target currency is then on average 1% stronger. Based upon this sample, every $1 billion deal has an approximately 0.5% positive impact on the target currency. The study also showed this impact to peak at around 5%.
How are they used in Foreign Exchange?
� All Cash Deal -> Most Significant Impact � All Stock Deal -> Minimal Impact
� Stock & Cash -> Impact Based Upon % of Cash
It is very important for traders to consider the specifics of the deal itself. For instance, deals comprised entirely of stock swaps rarely have an impact on the FX market because there is no foreign exchange transaction taking place. On the other hand, deals involving large cash transfers strongly affect the FX market. Deals involving a mixture of both elements require a more in depth assessment of the relative value of the cash portion of the transaction and whether or not it is significant enough to move the markets.
The following charts are examples of two deals done in 2003 and another in 2000. In each of the three examples, the target corporation's currency appreciated significantly against the acquirer's currency in the months following the announcement, which illustrates how M&A transactions move markets."
What are they?
� M&A Deals -> Average 1% Appreciation in Target's Currency
� Every $1 Billion Dollars -> 0.5% Positive Impact on Target's Currency
Mergers and acquisitions (M&A) involve the combining of two corporations or the acquisition of a part of a corporation by another corporation. Large cross border M&A activity of greater than US$500 million often has an impact on the Foreign Exchange market. A study done by the Bank for International Settlements (BIS) disclosed that large M&A deals cause the target corporation's domestic currency to appreciate 1%, on average, relative to that of the acquiring corporation. In fact, the report finds that in the period immediately after the deal is announced, there is generally a strong upward movement in the target corporation's domestic currency (relative to the acquirer's currency). Fifty days after the announcement, the target currency is then on average 1% stronger. Based upon this sample, every $1 billion deal has an approximately 0.5% positive impact on the target currency. The study also showed this impact to peak at around 5%.
How are they used in Foreign Exchange?
� All Cash Deal -> Most Significant Impact � All Stock Deal -> Minimal Impact
� Stock & Cash -> Impact Based Upon % of Cash
It is very important for traders to consider the specifics of the deal itself. For instance, deals comprised entirely of stock swaps rarely have an impact on the FX market because there is no foreign exchange transaction taking place. On the other hand, deals involving large cash transfers strongly affect the FX market. Deals involving a mixture of both elements require a more in depth assessment of the relative value of the cash portion of the transaction and whether or not it is significant enough to move the markets.
The following charts are examples of two deals done in 2003 and another in 2000. In each of the three examples, the target corporation's currency appreciated significantly against the acquirer's currency in the months following the announcement, which illustrates how M&A transactions move markets."
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