Uncovered Interest Rate Parity: Risks and Returns
Uncovered Interest Rate Parity (UIP): Actors and Exchange Rate Risk
Exchange Rate Strategies and Returns
Uncovered Interest Rate Parity (UIP) states that the expected returns on investments are subject to potential variations in exchange rates. Let’s examine two strategies:
- Buying domestic treasury plans:
- Return (Rb) = (1 + R), where R is the domestic interest rate.
- Buying foreign treasury plans:
- Initial return: Rb = 1/S * (1 + Re), where S is the spot exchange rate and Re is the foreign interest rate.
Key Accounting Principles and Financial Ratios
Accounting information helps users evaluate the amount, timing, and uncertainty.
Key Accounting Principles
- Relevance: Pertinent to the decision at hand.
- Predictive Value: Information is useful in predicting the future.
- Confirmatory Value: Information confirms expectations.
- Materiality: Concerns the relative size of an item and its effect on decisions.
- Faithful Representation: Agreement between the measure and the phenomenon it purports to represent.
- Completeness: Includes all information necessary for
Understanding Currency Exchange Rates and International Trade
Currency Exchange Rates
To facilitate international trade, it’s necessary to understand relative prices for converting one currency into another. This involves:
- A market that produces currency exchange.
- A system that establishes exchange rates.
Transactions are made in the currency exchange market.
The Currency Market
Currencies are bought and sold in a specific market for several reasons:
- To gain financial profitability by buying and selling assets.
- To profit from variations in exchange rates.
The function
Read MoreInventory and Receivables: Accounting Principles
Inventory and Receivables: Essential Concepts
Inventory Types and Systems
- Merchandise Inventory: Goods held for resale.
- Manufacturing Inventory: Includes raw materials, work in progress, and finished goods.
- Perpetual Inventory System: Continuously updates inventory records for each purchase and sale.
- Periodic Inventory System: Updates inventory records at the end of an accounting period.
Inventory Costing Methods
- First-In, First-Out (FIFO): Assumes the earliest goods purchased are the first to be sold.
Fundamental Accounting Concepts
Key Accounting Principles and Practices
Understanding Basic Accounting Concepts
A company that receives money in advance of performing a service:
- a. Debits Cash and credits Unearned Fees
Courtney Company purchased equipment for $1,800 cash. As a result of this event:
- c. Assets remained unchanged.
Which of the following statements is not true?
- a. Expenses increase stockholders’ equity
When a service has been performed, but no cash has been received, which of the following statements is true?
- d. The entry
Understanding COGS, Inventory, and Financial Statements
Key Financial Concepts: COGS, Inventory, and Statements
Sales revenue less COGS (Cost of Goods Sold) is called gross profit. Gross profit less operating expenses equals net income. Operating expenses appear on both income statements of merchandising and service companies. COGS appears on both single and multiple-step income statements.
Single-Step vs. Multiple-Step Income Statements
A single-step income statement reports sales revenue and other revenues and gains in the revenues section. Sales Returns
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