Question 2

Company X sells on a 1/30, net 60 basis. Customer Y buys X's goods invoiced at $100,000. Commercial Bank's deposit rate is 3% per year.

Based on the information above, please choose the most convincing statement.

Answer: [ ]

a.It is favorable for Y to make a full payment to X within 30 days

b.It is favorable for Y to delay payment up to 60 days

c.Y should pay interest if overdue 30 days

d.It depends on storing cost of inventory

Question 3

Higher U.S. interest rates typically support the dollar by making U.S. assets attractive to yield-seeking investors. Investors expect that the U.S. Fed will increase short-term rates more aggressively this year than its central-bank peers.

Applying Interest Rate Parity (IRP) to the above, please choose the most reasonable statement.

Answer: [ ]

a. Increasing U.S. interest rate will lead to currency forward discount on US dollar (base)

b. Due to lower interest rate in Japan, Japanese Yen is likely to depreciate against US dollar

c. IRP holds on a risk-adjusted basis

d. IRP is in reverse relationship with relative Purchasing Power Parity