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 a subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance.

Respond to the following memorandum from your editor: In your upcoming series on multinational finance, I would like to make sure you cover several specific points. Before beginning the work, 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:

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

What does the term arbitrage profits mean?

What can a firm do to reduce exchange rate risk?

What are the differences among a forward contract, a futures contract, and options?