Global Financial Markets - PDF

GLOBAL
FINANCIAL
MARKET

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Test EMH and derive trading profit from the event...........................................................1
2. Trading strategies and instrument to exploit price efficiency/inefficiency........................2
3. Conclusion & Recommendation.........................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The global financial market is worldwide framework of legal agreements, institutions and
both formal and informal economic actors that together facilitate international flows of financial
capital for purposes of investment and trade financing (Masciandaro, 2017). It is wide term that
will used by companies to described of market place where dealing into securities where consist
of equities, currencies, bonds as well as derivatives. The report based on the case study to
AbbVie made a non binding proposal to acquire Allergan for $63bn'. US pharmaceutical
company AbbVie has agreed to bought Botox manufacturer Irish-domiciled Allergan in a $63
billion agreement that is the recent blockbuster acquisition in the industry caused by the need for
drug pipelines to be replenished. AbbVie is sure that such acquisition would result in
improvement in company's offering because Humira, a best-selling worldwide treatment in
respect of inflammatory diseases, is set to face competition through generic versions as medicine
goes off copyright and patent in US. Such contract is second largest acquisition in medical
industry released this year after Bristol-Myers Squibb decided to purchase Celgene for $74
billion, a manufacturer of anticancer drugs.
MAIN BODY
1. Test EMH and derive trading profit from the event
The efficiency market hypothesis (EMH) is an investment theory primarily traced from
concepts attributed to Eugene Fama's research as described in their 1970 book, efficient capital
markets. Efficient market hypothesis is right because it has very big application for financial
market. The efficiency of this market advise that active stock selection is very difficult and it is
not possible due to markets are very efficient.
The portfolio of Allergan is renowned for Botox, a widely famous non-surgical and
cosmetic therapy or treatment, however the firm also produces medicines which are used in
central nervous, gastroenterology and eyecare diagnosis. As per agreement of acquisition
AbbVie will settle approx $188.24 for each Allergan's share, consisting of cash amounting
approx $120.30 in cash and the remainder in stock. Such deal 's size of $188.24 which is equal to
share is a 45% premium to closing price of Allergan's share. Investors of AbbVie gave such
business deal 's idea, sending shares of Chicago-based company plummeting approx 15% to
$66.38. Securities of Allergan increased by 27 % to $163.94. Also with Allergan's debt of $20bn
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overall company value in context of this deal is reached at $83bn (Robson, 2015). As per
Richard Gonzalez, AbbVie's Chairman and Chief Executive Officer, This approach of
acquisition enables company to expand AbbVie's operation while maintaining our concentration
on advanced science and developing company's sector-leading pipeline in to the future.
Event analysis is the process that provides valuable input training and education,
reliability trend and reliability standards development to define the profitability of organization.
It also provides valuable feedback to organization in order to improve operations. EMH refers
Efficient market hypothesis that defines assets prices reflects on all available information. It is
conducted by organization to beat the market by accepting challenges. Company analysis the risk
within market and introduce from new challenges that need to face by company in order to
achieve objectives (Dootson, Beatson and Drennan, 2016).
From market analysis it is clear that AbbVie has expected quarterly pre-tax gains as well
as other price reductions of approx at least $2 billion in its fifth year following the close of such
agreement in late 2020. Little savings in costs are probable as a result of optimisation in
Allergan's R&D activities. The efficiency of market influence by the theory of EMH that is weak
from market, semi strong form market and strong form market.
 As per the weak form getting that the price of current stock represents whole available
information and past price information which has been not relationship in the further
activities (Przychodzen and Przychodzen, 2015). In general terms, the form of hypothesis
define that it will be used for only technical analysis to accomplish exceptional return is
impossible.
 The form of semi strong define that inventory amount have factored in all utilise public
data. Due to this, it is not possible for fundamental analysis to select inventory that will
beat the return of market.
 In the end of form of strong in the efficient market hypothesis tells that all the public
information as well as private information is integrated in reference to present inventory
ant it is required for beat the impossible in the market with the help of analysis at all.
2. Trading strategies and instrument to exploit price efficiency/inefficiency
By conducting event analysis to test EMH organization is trying to state trading profit
from event which is conducted by organization (Schlegelmilch, 2016). Trading is a game of
unemotional precision that require planning and execution that can help to make effective
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decision. A trading strategy helps to maintain the productivity and profitability of organization
by selecting best. There are different types of trading strategies that are defined to get profits
which are explained as: Day trading - This is well known active trading style that is used to buy and sell
securities within same day. In this strategy positions are closed out within same day, no
position are held overnight. It is mainly used by professional trader to know about trading
and make profits (Poulfelt and et.al, 2017). Position trading - It is also known as buy and hold strategy that states long term charts
such as daily to monthly. It also determine the trend of current market direction. This
type of trade may last for several days to several weeks. It may be longer than this period
also. Swing trading - It is shown by a trend that involves volatility prices due to establishing
new trend. Swing trader buy and sell that prices volatility that helps to maintain the
profits within organization.
 Scalping - This is quickest strategy run by active trader to define the risk which are
associated with trading. It commonly, works by making spread and buying at bid price
and selling at the ask price to get difference among two price points.
All the above strategies used by AbbVie for acquiring Allergan in efficient way and these
are helping to trading with other companies.
Price – It is a value which is helping to recognise product and services is the result of a
complex set of calculations, research and determining and risk taking capability. The pricing
strategy applied by AbbVie for acquiring Allergan, is set as per the account segments, ability to
pay, situation of market, competitors actions, trade profits and signal value. There is targeted to
costumers and against competitors. The company adopting premium pricing strategy for
acquiring Allergan.
Premium pricing strategy – It is mainly utilised for sufficient criteria and work in
different segments and enterprises (Brandas, Megan and Didraga, 2015). There are getting strong
competitive benefit against of existing company. After acquiring Allergan, AbbVie is towards
becoming biggest pharmaceutical company.
Price efficiency: This is a concept which is used to sale assets and helps to make profits.
Organization use this concept in effective manner in order to set prices and increase
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productivity. At this prices buyers and sellers get agree to purchase and sale the products and
services. This is also known as relevant prices that helps to make correct business decision.
Price inefficiency: This means absence of efficiency in price that may be difficult for
organization (Brivot, Cho and Kuhn, 2015). If organization uses price inefficiency that means it
is not running its business successfully. As price play an important role within organization, it
should be efficient to make profitability. According to this, price may by exceed cost of products
that influences business organization as it can not make profits and right business decision.
3. Conclusion & Recommendation
As per the above discussion it has been concluded that AbbVie through acquisition get
more resources and come changes in their net profit and market efficiency also provided
advantages (Kantudu, and Samaila, 2015).
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As above presented revenue statement of AbbVie it could be easily analysed that after
acquisition these has been a boost in overall revenue and net income reported by company. As
such acquisition took place in year 2015 so in graph of revenue and net income an increase after
such period has been reported. In year 2014 company's overall revenue was USD 19960 million
which has been increased rapidly with a large move to USD 22859 million in year 2016 and
USD 25638 million in year 2017. While on other hand company's net income of USD 1774
million has been reached to USD 5144 million in year 2015, and further it has been increased to
USD 5953 million in year 2016. AbbVie's operating profit after acquisition just has doubled.
Operating profit is an evaluation measure that estimates the profit from the continuing key
activities of a company, thereby excluding tax and tax deductions. In the context of respective
company there have been increase in the operating profit figure because the management have
better plans to reduce cost of production and increase sales in the following years. This also
indicates that AbbVie's company handles a amount of factors effectively, such as maintaining
expenses small enough to make a constant profit and selling products at a decent pace.
From the above table it have been observed that from the last 4 year the revenue of
AbbVie's have shows a positive growth such as ion year 2017 it was 6.23 % which directly
double in year 2015 to 14.52 % which means that company is able to deliver best services to
customer that directly increase its sales in respective year. In rest of the year revenue remains to
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be constant or there are slightly any change in the overall income generation of company which
indicates that AbbVie's is doing well and able to gain success and reach to desired targets. It is
also interpreted that operating income have been increasing at a high pace such as in year 2014 it
was (39.78 %) which moves to 120.963 % in year 2015. This indicate the year was very much
profitable for company because the are able to control the cost of production and meanwhile able
to increase sales. The above table shows that operating income decrease after 2015 and in 2018 it
shows negative percentage (33.60 %) this means that labour cost for AbbVie's might increase or
they are expanding too much on other sales related activities. The net income percentage in year
2014 was negative that is approx (57.03 %) which means that AbbVie's have been spending
more on raw material or there might be increase in the labour cost due to which bottom line of
company might gets affected or there is negative net profit for respective year. In year 2015 the
net profit margin of company increase up-to 109.97 % which means that they are able to cover
its actual break even cost and maintain a healthy profit. They also set the best price for their
manufacture goods that makes easier to maintain highest profit margin.
It is also observed from the above table that earning per share for company shows a
positive growth. Such as in year 2014 it was (57.03) which means that profit for company is not
sufficient and management needs to improve the sales by introducing new features within
product.
CONCLUSION
From the above report it has been concluded that company must concentrate on their
market share and create a strong business picture in order to improve their price structure and
trade policy. So it is suggested that efficient marketing and trading policies are implemented by
the business that will assist to benefit potential investors. The share value specified by both firms
after the procurement statement as it is represented in their business operations In theoretical
manner, it presents strong form of market efficiency. In practical manner in the place of market
of LSE and NYSE, where there is a high restriction regarding to trading so there is required to
plausible to have strong form of efficiency.
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REFERENCES
Books and Journal
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Financial Services Marketing. 20(4). pp.282-291.
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global financial crisis: Implications of public anger, processing depth and retroactive
memory interference for public recall of events. Journal of Marketing Communications.
22(3). pp.284-306.
Dootson, P., Beatson, A. and Drennan, J., 2016. Financial institutions using social media–do
consumers perceive value?. International Journal of Bank Marketing. 34(1). pp.9-36.
Schlegelmilch, B. B., 2016. Global Marketing Strategy. Management for Professionals.
Poulfelt, F. and et.al, 2017. The changing global consulting industry. In Management Consulting
Today and Tomorrow (pp. 5-36). Routledge.
Brandas, C., Megan, O. and Didraga, O., 2015. Global perspectives on accounting information
systems: mobile and cloud approach. Procedia Economics and Finance. 20. pp.88-93.
Ratten, V. and Madichie, N., 2016. The dynamics of sport marketing. Marketing Intelligence &
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Iancu, I. A., 2016. Marketing mix in financial investment services companies. SEA–Practical
Application of Science. 4(10). pp.59-64.
Przychodzen, J. and Przychodzen, W., 2015. Relationships between eco-innovation and financial
performance–evidence from publicly traded companies in Poland and Hungary. Journal
of Cleaner Production. 90. pp.253-263.
Kantudu, A. S. and Samaila, I. A., 2015. Board Characteristics, Independent Audit Committee
and Financial Reporting Quality of Oil Marketing Firms: Evidence from
Nigeria. Journal of Finance, Accounting & Management. 6(2).
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