Problem:
Sample Multiple choice--please provide answer for study.
Question 1: Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm's reported earnings (from the consolidated income statement) to _______. If a firm desired to protect against this possibility, it could stabilize its reported earnings by _______ euros forward in the foreign exchange market.
- be reduced; purchasing
- be reduced; selling
- increase; selling
- increase; purchasing
Question 2: Assume the bid rate of a Singapore dollar is $.40 while the ask rate is $.41 at Bank X. Assume the bid rate of a Singapore dollar is $.42 while the ask rate is $.425 at Bank Z. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
- $11,764.
- -$11,964.
- $36,585.
- $24,390.
- $18,219.