Which of the Following Are NOT True

question 11

Multiple Choice

Which of the following are NOT true

• A) Risk-neutral valuation and no-arbitrage arguments give the same option prices
• B) Risk-neutral valuation involves assuming that the expected return is the risk-free rate and then discounting expected payoffs at the risk-free rate
• C) A hedge set up to value an option does not need to be changed
• D) All of the above

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Definitions:

Depository Institutions Deregulation

The process of removing or easing government regulations on banks and other depository institutions to enhance efficiency and competitiveness.

Money Creation

The process by which the money supply of a country is increased through activities primarily conducted by its central bank.

Monetary Control Act

A 1980 United States federal law that aimed to improve the Federal Reserve's control over monetary policy and to ensure more effective financial regulation.

Excess Reserves

The funds that banks hold over and above the legal requirement set by a central bank or banking regulator.