If the Quote for a Forward Exchange Contract Is Greater

question 114

Multiple Choice

If the quote for a forward exchange contract is greater than the computed price,the forward contract is

• A)overvalued.
• B)undervalued.
• C)a good buy.
• D)at equilibrium.

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Definitions:

Depreciation Expense

The orderly assignment of the financial value of a real asset over its life of usefulness.

EBIT

The financial performance metric, Earnings Before Interest and Taxes, deducts all expenses from a firm's income except for interest and tax expenses.

Return On Equity

A measure of a corporation's profitability, calculated as net income divided by shareholder's equity, indicating how effectively management is using a company’s assets to create profits.

Total Equity

The total of all stockholder's equity (both preferred and common stock) plus retained earnings within a company.