1- The spread is a function of a variety of factors. You can think of the spread as a function of these factors. For example:

Spread= f(Order Costs, Inventory Costs, Competition, Volume, Currency Risk)

All else equal, if the inventory costs increases then the spread will most likely _______(increase OR decrease)

2- Suppose that an MNC wishes to purchase a foreign exchange derivative contract in order to hedge future payments they expect to make or receive.

If the MNC wishes to purchase this derivative on an exchange, rather than an over-the-counter market, it will most likely choose to purchase which of the following types of contract?

a. Currency Options Contracts

b. Currency Futures Contracts

c. Forward Contracts