International Financial Markets (fictitious companies: mock situation/plan)

       It is with approbation that AME, a United States firm, in choosing between acquisition talks with JLE Industries, located in the European Union (EU), and uses the Euro for its currency, and an acquisition with DCB Industries, not located in the EU, and do not use the Euro, the choice be JLE Industries.  Several factors support this acquisition, such as the many benefits of using the Euro.  These benefits include discarding the need to convert currencies when businesses compare prices, in addition to, interest rates, exchange rates, and shock absorption. 

   

       The introduction of the Euro brought in lower interest rates.  The exchange rates in the EU are stable, meaning that none of the member states could swing their exchange rate more than 2.25% from a central point, thus, creating stable commerce, without changes in currency values that would negate trade, or trading barriers between member states.  The microeconomics effects is positive from the fruition of the fixed exchange rate, such as the reduction of foreign and transaction currency management costs, and the removal of uncertainty in exchange rates.  Additionally, if AME chooses an acquisition with DCB Industries, the exchange rate may be floating.  In turn, currencies are determined in an open market based on supply and demand; additionally, according to Belke and Baumgartner’s report, “Regional diversification cushions the net effects of differentiated sectoral shocks on the economy, thereby reducing the risks of national instability."

        The main factor for acquiring JLE Industries is that the EU is a single market that represents 27 countries, providing easy market access.  On the other hand, one of the disadvantages that could be crippling is the threat of a Euro-zone fragmentation.  Although the Euro has its advantages, a company, such as AME, should have a contingency plan in case of a break-up that causes economic growth to slow down, new currencies implemented, and a panic that would rush the banks in which the businesses rely on funding.  It is more than likely to hit unexpectedly, causing a rift in businesses across the Euro-zone.  Therefore, it is in AME’s best interest to have a contingency plan. 

        Moreover, the European Economic Community (EEC) has harmonized the transport of goods and services within the European Union (EU).  Also, as the EU becomes more integrated, non-EU firms would benefit from an acquisition with an EU firm because the opportunity for technology sourcing and potential synergies with the acquired firm, as well as the ability to connect to other EU firms knowledge base, who are part of the network of the acquired firm.  Not only would AME benefit from technology sourcing and synergy, but also the benefits of a unified commerce between the countries because of its monetary union.  Furthermore, rules and regulations have been set forth to ensure fair competition in the EU, hence, protecting against market power, such as monopolies and cartels fixing prices or sharing our markets. 

        In conclusion, there are many advantages for AME acquiring JLE Industries, over DCB Industries.  Even though one country could upset the entire EU system, crisis prevention through a contingency plan could aid AME.  Even though this detriment is looming, the advantages of acquiring a business in the EU, where there is a monetary union, would put AME above the risks.