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    Depreciation of the euro; locational arbitrage

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    Sample Multiple choice--please provide answer for study.

    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

    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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    https://brainmass.com/business/foreign-exchange-rates/depreciation-euro-locational-arbitrage-41065

    Solution Preview

    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; ...

    Solution Summary

    Answers to two multiple choice questions on Depreciation of the euro and locational arbitrage etc.

    $2.19