Changes in foreign currency values

Question 1: In most cases, translated income gains and losses due to changes in foreign currency values are reported as _______ when using FASB-52.

a) current net income
b) revenues (for gains) or operating expenses (for losses)
c) a component of stockholder's equity
d) none of the above

Question 2: Assume the following bid and ask rates of the pound for two banks as shown below:

Bid Ask
Bank C $1.61 $1.63
Bank D $1.58 $1.60

As locational arbitrage occurs:

a) the bid rate for pounds at Bank C will increase; the ask rate for pounds at Bank D will increase.
b) the bid rate for pounds at Bank C will increase; the ask rate for pounds at Bank D will decrease.
c) the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will decrease.
d) the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will increase.

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Finance Basics: Changes in foreign currency values
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