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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Definitions:

Mutual Provision

Mutual provision relates to the sharing or exchange of services, resources, or benefits between parties, often within a cooperative or collaborative framework.

Support Department Cost Allocation

The process of distributing indirect costs from support departments, such as Human Resources or IT, to operational departments or product lines.

Dual Cost Allocation

A method of cost allocation that involves assigning costs to two or more objects without arbitrarily dividing them.

Long-Run Average Usage

The average amount of a resource used over a prolonged period, reflecting consistent consumption patterns.