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?
"International finance distinguishes itself from domestic finance due to exchange rate, cross border barriers and financing opportunities in the global market.
Foreign Risks: International trade and investment requires dealing with foreign currencies, receiving the foreign exchange in the future or paying the foreign exchange in the future, which exposes a company/investor to currency risk, which is the risk of an adverse exchange rate movement. Also, there are potential political Risks for multinationals making investments and doing business overseas. Building production facilities overseas is a long term investment. Political climate can change and present risks. It may be difficult to enforce a contract in a foreign country.
Market Imperfections/Barriers to Trade: Various frictions and impediments, such as protectionist...