Question：The relationship between the nominal rate used for discounting cash flows (i), the real rate (r) and the rate of inflation (h) may be expressed as which one of the following?

　　A. (1+r) = (1+i) x (1+i)

　　B. (1+h) = (1+i) x (1+r)

　　C. (1+i) = (1+r) x (1+h)

　　D. (1+r) = (1+i) - (1+h)

　　The correct answer is: (1+i) = (1+r) x (1+h).

　　The nominal rate for discounting cash flows is made up of two components: the real rate and the rate of inflation

　　Question：In translating the statement of financial position of a company from local currency to sterling, which rate should be used to translate non-monetary items stated at historic cost?

　　A. The rate of exchange which produces the lowest valuation in the year.

　　B. The rate of exchange at the date of the original transaction.

　　C. The weighted average exchange rate for the reporting period.

　　D. The closing rate on the statement of financial position.

　　The correct answer is: The rate of exchange at the date of the original transaction.