Which of Statements A) Through D) Concerning Jorion's "The Pricing

question 24

Multiple Choice

Which of statements a) through d) concerning Jorion's "The Pricing of Exchange Rate Risk in the Stock Market" [Journal of Financial and Quantitative Analysis 1991] multi-factor analysis of currency risk is FALSE?

• A) Exchange rate risk is diversifiable and is not priced in the stock market.
• B) The exchange rate factor is subsumed into Chen, Roll and Ross's ["Economic forces and the stock market," Journal of Business 1986] five macroeconomic factors.
• C) The exchange rate factor is subsumed into the market index when the market index is added to the exchange rate factor.
• D) There is little cross-sectional variation in the exchange rate exposure of individual firms and industries.
• E) All of the above are true.