1. Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a smaller impact on inflation in Country Y under the _______ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a smaller impact on unemployment in Country B under the _______ system.

a. floating rate; fixed rate

b. floating rate; floating rate

c. fixed rate; fixed rate

d. fixed rate; floating rate

2. Pam Company owns 25 percent of Sun Corporation. During the year, Sun had net earnings of $450,000 and paid dividends of $28,000. Pam mistakenly recorded these transactions using the cost method rather than the equity method. What effect would this have on the investment account, net earnings and retained earnings, respectively?

a   Understate, overstate, overstate

b   Overstate, understate, understate

c   Overstate, overstate, overstate

d   Understate, understate, understate