Which of the Following Statements Is FALSE

question 10

Multiple Choice

Which of the following statements is FALSE?

• A)The rate of interest paid on government bonds or other securities in a country with a tradition of weak enforcement of property rights is likely not really a risk-free rate.Instead,interest rates in the country will reflect a risk premium for the possibility of default,so relations such as covered interest rate parity will likely not hold exactly.
• B)If the return difference in a segmented financial market results from a market friction such as capital controls,corporations can exploit this friction by setting up projects and raising capital in the high-return country/currency.
• C)Important macroeconomic reasons for segmented capital markets include capital controls and foreign exchange controls that create barriers to international capital flows and thus segment national markets.
• D)A segmented financial market has an important implication for international corporate finance: One country or currency has a higher rate of return than another country or currency,when the two rates are compared in the same currency.

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Definitions:

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