Assume IBM Enters into a Forward Contract to Purchase 100,000

question 1

Multiple Choice

Assume IBM enters into a forward contract to purchase 100,000 euros at a rate of $1.60/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

• A) $100,000
• B) $160,000
• C) $200,000
• D) $300,000

Analyze how market equilibrium price and quantity are determined in competitive markets.

Identify the relationship between cost structures (fixed, variable, and total costs) and pricing decisions in competitive firms.

Comprehend how firms in competitive markets make production decisions based on marginal analysis.

Recognize the conditions under which firms in purely competitive markets will achieve economic profits, break-even, or incur losses.

---

Definitions:

Cost of Goods Sold

The cost of goods sold (COGS) represents the direct costs associated with the production of goods sold by a company, including materials and labor costs.

Earnings Per Share

A company's profit divided by the number of outstanding shares of its common stock, serving as an indicator of the company's profitability.

Book Value

Book value is the net value of a company's assets minus its liabilities, often used to assess if a stock is under or overvalued.

Market-to-Book Ratio

A financial valuation metric comparing a company's current market price to its book value.