If the Exchange Rate Follows a Random Walk

question 81

Multiple Choice

If the exchange rate follows a random walk

• A)the future exchange rate is unpredictable.
• B)the future exchange rate is expected to be the same as the current exchange rate, S_t = E(S_t+1).
• C)the best predictor of future exchange rates is the forward rate F_t = E(S_t+1|I_t).
• D)both b) and c)

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Definitions:

Variable Costing

An accounting method that only includes variable costs (costs that vary with production levels) in product costs and treats fixed costs as period costs expensed in the period incurred.

Manufacturing Margin

The difference between the sales revenues generated from manufactured goods and the cost of goods sold, indicating the profitability of production.

Contribution Margin

The difference between the sales revenue generated from a product or service and the variable costs associated with its production and sales.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold and excludes fixed manufacturing overhead.