Coverage A: Dwelling protects

Suppose the 360-day forward exchange rate is 1.657 dollars per British pound, and the current spot

rate is 1.625 dollars per British pound. If the 360-day interest rate in the United States is 5% and the 360-day interest rate in Great Britain is 3%, is the market in equilibrium according to the interest rate parity theory? A) No, because the forward premium on the pound is 2% while the interest rate in the United States is 67% higher than the interest rate in Great Britain. B) No, because the higher interest rate in the United States (2%) implies that the forward exchange rate should be 2% lower than the current spot rate. C) Yes, because the forward premium on the pound (2%) is exactly offset by the lower interest rate in Great Britain. D) Cannot be determined without knowing the amount of money being exchanged.

Lewis Corporation reported the following information for the year ended December 31, 2015: Net income $ 10,000 Dividends 6,000 Retained earnings at December 31, 2015 25,000 What was the economic effect of the payment of Lewis' dividends?

a. The dividend reduced net income for 2015. b. The dividend should be equal to net income if the company's accounting equation is in balance. c. The dividends reduce total retained earnings for the year. d. The dividends must be paid whenever Lewis Corp. reports net income.