Whenever There Is a Difference in the Same Exchange Rate

question 50

Multiple Choice

Whenever there is a difference in the same exchange rate offered in two markets, an arbitrageur would:

• A) wait for the markets to come to equilibrium.
• B) buy in the market where the currency is offered at the cheaper rate, and simultaneously sell the currency where the rates are higher.
• C) sell the cheaper-rate currency in the home market.
• D) not consider the trade, since prices would undoubtedly change before it could be executed.

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Definitions:

Unit Contribution Margin

The amount that the sale of one unit contributes toward covering fixed costs and then to profit, calculated as the selling price per unit minus the variable cost per unit.

Contribution Margin Ratio

A financial metric that shows the percentage of sales revenue remaining after variable costs are subtracted, indicating how efficiently a company can produce and sell products.

Break-even Point

A point where total cost and total revenue are equal, indicating no profit or loss and where production or sales start becoming profitable.

Fixed Expenses

Overheads such as rent, employee salaries, and insurance that do not fluctuate with changes in sales or manufacturing volumes.