If the Returns of Two Securities Are Compared Over Time

question 31

Multiple Choice

If the returns of two securities are compared over time and there appears to be no relationship between their movements,what is the likely value of their coefficient of correlation?

• A)+1
• B)−1
• C)0
• D)+∞ (infinity)

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Definitions:

LIBOR

The London Interbank Offered Rate, previously a benchmark interest rate at which major global banks lend to one another.

Bankers' Acceptances

Short-term debt instruments issued by a company that is guaranteed by a commercial bank, commonly used in international trade.

Brokers' Calls

The interest rate charged by banks on loans extended to brokerage firms for the purpose of funding clients' margin accounts.

Residual Claimant

An individual or entity entitled to a share of a company's assets only after all debts and other obligations have been met in the event of liquidation.