Which of the Following Statements Is True

question 47

Multiple Choice

Which of the following statements is true?

• A)All assets and liabilities are convex.
• B)All fixed-income securities, including those with special option features, are convex.
• C)All assets are convex, all liabilities are convex and all fixed-income securities, including those with special option features, are convex.
• D)None of the listed options are correct.

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Definitions:

Potential Arbitrage

An opportunity to buy an asset at a low price in one market and sell it at a higher price in another, profiting from the difference.

Generalized Fisher Effect

The theory suggests that the real interest rate is independent of monetary measures, relating nominal interest rates in one country to expected inflation rates.

Triangle Arbitrage

A method of profiting from the inconsistency in exchange rates between three currencies in the foreign exchange market by converting them sequentially.

Canadian Dollar

The official currency of Canada, often represented by the symbol CAD or $CA, and used throughout the Canadian economy.