Which of the Following Illustrates Non-Contractual Exchange-Rate Risk

question 8

Multiple Choice

Which of the following illustrates non-contractual exchange-rate risk?

• A)A Canadian importer will owe £50,000 and the pound is expected to appreciate.
• B)A French airplane manufacturer has suppliers in Canada and the exchange rate has been unstable.
• C)A Canadian distributor of Japanese electronic goods expects the Dollar to depreciate.
• D)A Canadian subsidiary of a German manufacturer transfers DM100,000 to the parent annually.

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Definitions:

Purchasing-power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to assess relative currency value and living standards.

Nominal Exchange Rate

The Nominal Exchange Rate is the rate at which one country's currency can be traded for another's, not adjusted for inflation, reflecting the current value of one currency compared to another.

Prices

The monetary value expected, demanded, or delivered in exchange for a good or service.

Real Exchange Rate

The rate at which two currencies can be exchanged, adjusted for inflation, reflecting the actual purchasing power of one currency over another.