Suppose for Two Currencies the Forward Premium Is 8

question 7

Multiple Choice

Suppose for two currencies the forward premium is 8.5% and the expected premium is 5%.Then the risk premium is:

• A) -13.5%
• B) -3.5%
• C) 3.5%
• D) 13.5%

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Definitions:

Absorption Costing

An accounting approach that factors in every manufacturing expense, like direct materials, direct labor, and both types of overhead (variable and fixed), into the product pricing.

Variable Costing

A costing method in which all variable manufacturing costs are included as inventory costs, while fixed manufacturing overhead is treated as an expense in the period incurred.

External Reporting

External reporting involves the preparation and presentation of financial statements and other reports by a company to provide financial and operational information to external stakeholders, such as investors, creditors, and regulatory agencies.

Absorption Costing

An accounting method that includes all manufacturing costs in the cost of a product.