Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Terms and concepts

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You are a consultant brought into help Bo's Television, a global conglomerate. ScreenMaster is a separate company that makes the screens for Bo's TVs. If Bo's acquired ScreenMaster, this would be an example of what?
  1. Conflict of interest.
  2. Horizontal integration.
  3. Transfer pricing.
  4. Vertical integration.
  5. Cost-based accounting.
Explanation
This is an example of vertical integration. By controlling the source of their parts, Bo's can reduce cost (so long as they get the transfer pricing right). Vertical integration could also allow a company to better control the quality and availability of its inputs.

Key Takeaway: Vertical integration is not always possible. The upstream providers may be too large. For instance, if you get your parts from Sony, you probably can't acquire them.

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