To State That Financing at Current Market Terms Is a Zero-NPV

question 1

Multiple Choice

To state that financing at current market terms is a zero-NPV transaction indicates that:

• A) firms should avoid these methods of financing.
• B) there is no cost involved in the financing.
• C) the market has not set financing terms correctly.
• D) there are no "bargains" when financing at current terms.

---

Definitions:

Nominal Exchange Rate

The rate at which one currency can be exchanged for another currency, without adjusting for inflation differences between the two countries.

Real Exchange Rate

A measure that compares the relative price of a basket of goods between two countries, adjusted for currency exchange rates.

Basket Of Goods

A set of products and services, considered a representative sample, used to measure the change in overall price levels over time, such as in the calculation of inflation.

Purchasing-Power Parity

An economic theory that states that the exchange rate between two currencies is equal to the ratio of the currencies' respective purchasing powers.