What is a comparative advantage in borrowing, and how could it arise?
What will be an ideal response?
Comparative advantage in borrowing means that the ratio of the borrowing cost in one currency (one plus the interest rate) to the borrowing costs in another currency is not the same for two companies. The company with the lower ratio has a comparative advantage in borrowing the numerator currency even though its absolute borrowing costs may be higher than the other company's costs in each currency. Such differences imply that the companies should borrow in the currency in which they have a comparative advantage, and swap into the currency of choice based on other considerations such as foreign exchange risk.
Comparative borrowing advantages arise because institutional differences across countries lead to debt pricing that is slightly different, depending on the ultimate holder of the debt and its currency of denomination. Some of these pricing differences are due to the different ways credit risks are analyzed around the world. Essentially, these differences amount to a market inefficiency that can be exploited for profit. The result is that some companies can more easily issue debt in some currencies than in other currencies.
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Identify and describe the two different approaches used to estimate the potential sales for a store site.
What will be an ideal response?
Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed: Direct materials: 5 yards at $1.50 per yard Direct labor: 40 minutes at $.20 per minute In the current year, 44,000 yards
of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute. Refer to the Paw-Paw Products information above. The company's direct labor rate variance for the current year is: A) $ 2,550 F. B) $10,200 F. C) $10,965 U. D) $16,065 U.
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