Most People Make Some Decisions Based on Intuition Rather Than

question 74

Multiple Choice

Most people make some decisions based on intuition rather than calculation. This is:

• A) irrational, because intuition is often wrong.
• B) consistent with the economic model of decision-making, because calculating costs and benefits leads to decision-making pitfalls.
• C) consistent with the economic model because people intuitively compare the relative costs and benefits of the choices they face.
• D) inconsistent with the economic model, but rational because intuition takes into account non-financial considerations.

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Definitions:

Transaction Exposure

The risk that the value of a company's foreign currency-denominated transactions will be adversely affected by exchange rate fluctuations.

Spot Rate

The existing market cost at which a specific asset is available for purchase or sale for instant delivery.

Forward Rate

The exchange rate specified in a forward exchange contract.

Premium

An amount paid for an insurance policy or an amount paid above the face value of a bond.