In an Efficient Market Without Barriers to Capital Flows, the Cost-Savings

question 7

Multiple Choice

In an efficient market without barriers to capital flows, the cost-savings argument of the QSD is difficult to accept, because

• A)it implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.
• B)it implies that an arbitrage opportunity exists because of some mispricing of the exchange rates on different maturities of forward contracts.
• C)none of the above

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