Instruction 20

question 44

Multiple Choice

Instruction 20.1: Use the information to answer the following question(s) .
Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing equipment to Landcaster's of Australia. Because the two companies have never done business with each other, Cypress requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the bankers acceptance to its bank, the discount rate is 1.00% per annum.
-Refer to Instruction 20.1. What is the total Cypress can expect to receive if the firm takes payment today?

• A)$993,000
• B)$995,000
• C)$988,000
• D)$996,000

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Definitions:

Exchange Rate

The value of one country's currency in terms of another currency or currencies.

Spot Rate

The current market price at which a particular asset, such as foreign exchange, is bought or sold for immediate delivery.

Real Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on an investment.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, eroding purchasing power.