A German importer of English clothing has contracted to pay an amount fixed in British pounds 3 months from now. lithe importer worries that the euro may depreciate sharply against the British pound in the interim, it would be well advised to:

• A.Buy pounds in the forward exchange market.
• B.Sell pounds in the forward exchange market.
• C.Buy euros in the futures market.
• D.Sell euros in the futures market.

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The following ratios relate to an entity's financial situation compared with that of its:

What conclusion could a financial analyst validly draw from these ratios?

• A.The entity's product has a high market share, leading to higher profitability.
• B.The entity uses more debt than does the average entity in the industry.
• C.The entity's profits are increasing over time.
• D.The entity's shares have a higher market value to carrying amount than does the rest of the industry.

Correct Answer: B

The use of financial leverage has a multiplier effect on the return on assets. The extended Du Pont formula illustrates this point by showing that the return on equity equals the return on assets times the grace factor, also called the equity multiplier total assets -ordinary equity). Thus, greater use of debt increases the equity multiplier and the return on equity. In this example, the equity multiplier is 1:12 15.2% ROE / 7.9% ROA), and the industry average is 1.40 12.9% ROE / 9.2% ROA). The higher quality multiplier Indicates that the entity uses more debt than the industry average.

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Entity X owns 90% of entity Y. Early in the year, X lent Y U$110,000. No payments have been made on the debt by year-end. Proper accounting at year-end in the consolidated financial statements would:

• A.Eliminate 100% of the receivable, the payable, and the related interest.
• B.Eliminate 100% of the receivable and the payable but not any related interest.
• C.Eliminate 90% of the receivable, the payable, and the related interest.
• D.Eliminate 90% of the receivable and the payable but not any related interest.

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If a just-in-time purchasing system is successful in reducing the total inventory costs of a manufacturing company, which of the following combinations of cost changes would be most likely to occur?

• A.2
• B.3
• C.4
• D.1

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Which of the following statements about market signaling is correct?
1.The organization releases information about a new product generation.
2.The organization limits a challenger's access to the best source of raw materials or labor.
3.The organization announces that it is fighting a new process technology.
4.The organization makes exclusive arrangements with the channels.

• A.2 and 4 only
• B.2 and 3 only
• C.1 and 3 only
• D.1 and 4 only

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