Ignoring Transaction Costs and Based Solely on the Change in Currency

question 18

True/False

Ignoring transaction costs and based solely on the change in currency exchange rates, a speculator who sold short a two-year contract for the euro (receiving dollars) in January 2006 would have realized a profit upon the exercise of the contract in January 2008.

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Definitions:

Accounts Receivable

Represents money owed to a company by its customers for goods or services delivered but not yet paid for.

Bad Debt Expense

The cost associated with accounts receivable that a company is not able to collect from its debtors, recognized as an expense on the income statement.

Net Realizable Value

The estimated selling price of goods, minus the estimated costs of completion and the costs necessary to make the sale, often used in inventory valuation and accounts receivable.

Notes Receivable

Financial claims against debtors documented through promissory notes that promise to pay the amount due with interest.