Interest rate exceeds the foreign interest rate

Problem 1: Springfield Co., based in the U.S., has a cost of goods sold attributable to foreign material orders that exceeds its foreign revenue. All foreign transactions are denominated in the foreign currency of concern. This firm would _______ a stronger dollar and would _______ a weaker dollar.

  • benefit from; be unaffected by
  • benefit from; be adversely affected by
  • be unaffected by; be adversely affected by
  • be unaffected by; benefit from
  • benefit from; benefit from

Problem 2: Based on interest rate parity, the larger the degree by which the U.S. interest rate exceeds the foreign interest rate, the:

  • larger will be the forward discount of the foreign currency.
  • larger will be the forward premium of the foreign currency.
  • smaller will be the forward premium of the foreign currency.
  • smaller will be the forward discount of the foreign currency.

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