A Transaction That Calls for the Payment and Receipt of the Foreign

question 22

Multiple Choice

A transaction that calls for the payment and receipt of the foreign exchange within two business days from the transaction date is a:

• A)forward transaction
• B)spot transaction
• C)arbitrage transaction
• D)foreign discount with respect to the domestic currency

---

Definitions:

Lockbox System

A service offered by banks to companies for the rapid collection of customer payments, by providing a special address to which payments are sent directly.

Opportunity Costs

The loss of potential gains from other alternatives when one alternative is chosen.

Target Cash Balance

The optimal amount of cash a company sets as a goal to maintain for operational and contingency needs.

Lockboxes

Special post office boxes set up to intercept and speed up accounts receivable payments.