What new problems and factors are encountered in international, as opposed to domestic, financial management?
For your job as the business reporter for a local newspaper,
you are asked to put together a series of articles on 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. Before you
begin this assignment, I want to make sure we are all reading from
the same script because accuracy has always been the cornerstone of
the Daily Planet. I’d like a response to the following questions
before we proceed:
a. What new problems and factors are encountered in
international, as opposed to domestic, financial management?
b. What does the term arbitrage profits mean?
c. What can a firm do to reduce exchange risk?
d. What are the differences among a forward contract, a futures
contract, and options?
Use the following data in your responses to the remaining
questions: Selling Quotes for Foreign Currencies in New York
COUNTRY-CURRENCY CONTRACT $/FOREIGN Canada–dollar Spot .8450 30-day
.8415 90-day .8390 Japan–yen Spot .004700 30-day .004750 90-day
.004820 Switzerland–franc Spot .5150 30-day .5182 90-day .5328
e. An American business needs to pay (a) 15,000 Canadian
dollars, (b) 1.5 million yen, and (c) 55,000 Swiss francs to
businesses abroad. What are the dollar payments to the respective
f. An American business pays $20,000, $5,000, and $15,000 to
suppliers in, respectively, Japan, Switzerland, and Canada. How
much, in local currencies, do the sup
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