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    International Financial Management

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    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 has 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 a response to the following memorandum from
    your editor:

    TO: Business Reporter
    FROM: Perry White, Editor, Daily Planet
    RE: Upcoming Series on Multinational Finance
    In your upcoming series on multinational finance, I would like to make sure you cover several
    specific points. In addition, before you begin this assignment, I want to make sure we are all
    reading from the same script, as accuracy has always been the cornerstone of the Daily Planet. I'd
    like a response to the following questions before we proceed:

    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 reduce exchange risk?

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

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    https://brainmass.com/business/foreign-exchange-rates/international-financial-management-200993

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

    The major problem encountered in international financial management is the management of exchange rate fluctuations which, if not properly managed or hedged, can significantly affect the profitability of a firm.

    Another major problem is efficient movement of cash and working capital from one country to another, which often becomes challenging due to differences in banking infrastructure, legal restrictions, etc. of one country to another.

    Compliance with domestic as well as local accounting standards of different countries is also a major problem encountered in international financial management due to differences in accounting standards, practices and laws of different countries.

    Issues related to taxation in different nations also pose a major challenge to finance managers in global firms.

    2. What does the term arbitrage profits mean?

    Arbitrage is the simultaneous purchase and sale of a commodity or asset in different markets with the sole intent to make profit from the difference in buying and selling prices. Therefore, arbitrage is an exploitation of misalignment of market quotes. If the market is perfectly competitive, this sort of price differential cannot exist, thus arbitrage profit cannot exist. In this sense, arbitrage profit is a possible outcome of market imperfection in which buy cheap and sell dear is a feasible act of a vigilant trader.

    It should be pointed out that markets are mostly efficient and fades away pretty soon by the forces unleashed by the acts of buying low ...

    Solution Summary

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

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