Euros forward in the foreign exchange market


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.

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Finance Basics: Euros forward in the foreign exchange market
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