Share
Explore BrainMass

Financial management: Discuss arbitrage profits, exchange risk, forward contract, futures, options

For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on the multinational finance and the international currency markets for your readers. Much recent local press coverage had been given to losses in the foreign exchange markets by JGAR, a local firm that is the subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance.

Prepare responses to problems 1-4:

1. What new problems and factors are encountered in international as opposed to domestic financial management?

2. What does the term arbitrage profits mean?

3. What can a firm do to exchange risk?

4. What are the differences between a forward contract, a futures contract, and options?

Solution Preview

1. What new problems and factors are encountered in international as opposed to domestic financial management?

One of the major problems that is encountered in international as opposed to domestic financial management is exchange rate related risks. As multinational finance involves handling finances in multiple currencies, fluctuations in exchange rates between domestic currency and other currencies involved in the transaction can pose serious risks to the profitability of the organizations.

Another peculiar characteristic of the international financial management is differences in accounting and taxation related laws between different ...

Solution Summary

What new problems and factors are encountered in international as opposed to domestic financial management?

$2.19