The Nominal Interest Rate Is 5% and the Inflation Rate

question 54

Multiple Choice

The nominal interest rate is 5% and the inflation rate is 6%.A rational consumer

• A)will not save since the real interest rate is negative.
• B)will save less than 1% of her income.
• C)will save the same amount regardless of the inflation rate; only the nominal interest rate matters.
• D)might save despite the negative real interest rate.
• E)will necessarily save less if the inflation rate rises and the nominal interest rate does not change.

Identify the accounting treatment for foreign currency transactions under U.S. accounting standards.

Analyze the effects of forward contracts and options on financial risk management.

Determine the effective use of hedging in foreign exchange risk management.

Calculate the foreign exchange gain or loss on transactions.

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Definitions:

Actual Output

The real quantity of goods or services produced by a company, as opposed to planned or expected output.

Standard Variable Overhead Rate

The rate used in budgeting and costing that applies variable overheads to a specific activity basis such as labor hours.

Direct Labour Hours

The aggregate hours employees devoted to the process of production have logged.

Variable Overhead

Costs that vary with the level of output, such as utilities and labor, as opposed to fixed overheads.