[rknight21]

Am I still asleep why doesnt the answer to this qestion makes sense to me??? My brain must still be asleep.

A short-term speculative rise in the worldwide value of domestic currency could be moderated by a central bank decision to

A. Sell domestic currency in the foreign exchange market.

Answer A is correct. Selling domestic currency would increase supply and therefore decrease price.

B. Buy domestic currency in the foreign exchange market.

This answer is incorrect. Refer to the correct answer explanation.

C. Sell foreign currency in the foreign exchange market.

This answer is incorrect. Refer to the correct answer explanation.

D. Increase domestic interest rates.

This answer is incorrect. Refer to the correct answer explanation.

[IwannaBaCPA]

Draw your supply and demand curves. I always do this with these types of questions.

Ok, so since the value of domestic currency is EXPECTED to rise in the foreign market, that means that demand will likely increase (it is worth more). This is an expected change that will shift the demand curve to the right. That bumps up the price and so to mitigate this and keep exchange rates the same, the central bank will implement monetary policy by increasing the supply. This shifts the supply curve to the right as well keeping the price about where it was originally. If you draw this out, it should make more sense.

I am pretty sure this is what this question is saying…BEC was months ago, but economics still seems to stay floating around in my noggin…

BEC: 79 - April 2011
FAR: 78 - May 2011
AUD: 81 - May 2012
REG: 79 - October 2012
Ethics: Passed - March 2013
I am finally DONE!

[rknight21]

thanks Iwannabeacpa… it makes sense i need to draw the graph more for these questions

[IwannaBaCPA]

No problem. I always jot down the graph…its such a better way to see what is going on than trying to see it in my head…

good luck!

BEC: 79 - April 2011
FAR: 78 - May 2011
AUD: 81 - May 2012
REG: 79 - October 2012
Ethics: Passed - March 2013
I am finally DONE!

[Anonymous]

oops-responded to the wrong thread. disregard!

[IHATeMyBoss]

Question: xyz corp is evaluating their capital structure, while debt to equity ratio is less than 1, companys shareholder require a 13% return on equity & bank will charge after tax rate of 8%. xyz optimum capital structure is most likely to occur when the debt to equity ratio is:

a) .5

b) 1

Solution:

step 1: determine % components of debt equity ratio:

d/e = .5 = d of 33.3% , equity of 66.7%.

Might be a stupid question, but how did they come up with d of 33.3% and equity of 66.7%? i understand d+e=1, i can't get to the above #'s if d/e ratio is .5?

Thanks, I appreciate all the help in advance !!

BEC - 72 May2011, Aug 70
AUD
REG
FAR

[SusanStudies]

To get to a .5 ratio debt = 1 part and equity = 2 parts. Applying this to 100% you would get:

Debt: 100% (1/3) and Equity: 100% (2/3) or 33.33% and 66.67%.

AUD: 07/11/11 - Passed
BEC: 08/27/11 - Passed
FAR: 01/17/12 - Passed
REG: 04/30/12; Re-take 7/16/12 - Passed

FINISHED!!!!!!!!

[IHATeMyBoss]

Thank you Susan:)

BEC - 72 May2011, Aug 70
AUD
REG
FAR

[Author]

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