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# Depreciation of the euro; locational arbitrage

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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; selling
increase; selling

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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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.