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Depreciation of the euro; locational arbitrage

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.

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