Assume Your Uncle Recorded His Salary History During a 40-Year

question 12

Multiple Choice

Assume your uncle recorded his salary history during a 40-year career and found that it had increased 10-fold.If inflation averaged 4% annually during the period,then over his career his purchasing power:

• A) remained on par with inflation.
• B) increased by nearly 1% annually.
• C) increased by nearly 2% annually.
• D) decreased.

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Definitions:

Non-monetary Assets

Assets that are not in the form of cash or cannot be easily converted to cash, such as property, plant, and equipment.

Spot Rate

The current price in the foreign exchange market at which one currency can be exchanged for another currency.

Closing Rate

The closing rate is the exchange rate of a foreign currency against a home currency at the close of the accounting period, used in translating foreign currency financial statements.

Forward Rate

The agreed-upon future exchange rate between two currencies in a forward contract.