24-87 at the End of the Year,the Exchange Rate Is

question 68

Multiple Choice

24-87 At the end of the year,the exchange rate is €2/$.What are the losses and gains to each bank as a result of this swap compared to the scenario without the swap.

• A)With the agreement,Bank Dresdner pays €2.5 million less while Bank USA pays $1.25 million more.
• B)With the agreement,Bank Dresdner pays €2.5 million more while Bank USA pays $1.25 million less.
• C)With the agreement,Bank USA pays $3.75 million less while Bank Dresdner pays €7.5 million more.
• D)With the agreement,Bank USA pays $3.75 million more while Bank Dresdner pays €7.5 million less.
• E)Each bank pays the same because the exchange rate affects both parties equally.

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Definitions:

Job-Order Costing

An accounting method that assigns costs to specific jobs or batches, often used for custom orders.

Process Costing

An accounting methodology used in manufacturing environments where the cost of the product is calculated based on the processes it goes through, ideal for homogenous products.

Weighted-Average Method

A cost accounting method that calculates the cost per unit by dividing the total costs by the total number of units produced, incorporating costs from previous periods.

Equivalent Units of Production

A calculation method used in cost accounting that determines the units produced during a period, adjusting for incomplete units.