Which of the Following Statements About a Currency Risk Premium

question 29

Multiple Choice

Which of the following statements about a currency risk premium is not true?

• A)They arise since domestic and foreign assets may be imperfect substitutes.
• B)They arise since investors may have a more difficult time gathering information about foreign assets.
• C)They may arise because foreign assets may be exposed to risks of seizure by foreign governments.
• D)They can only be positive (not negative).

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Definitions:

Conditional CAPM

An extension of the Capital Asset Pricing Model (CAPM) that allows for the beta coefficient to change depending on economic conditions or time.

Empirical Returns

Returns on an investment that are based on observed, historical real-world data rather than theoretical or expected outcomes.

Conventional CAPM

The Capital Asset Pricing Model, a financial model that describes the relationship between systematic risk and expected return for assets, typically used for pricing risky securities.

Human Capital

The economic value of an individual's skill set and knowledge, which can contribute to their productivity and earnings.