Which of the Following Statements Is False

question 12

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.

---

Definitions:

Broker

An individual or firm that acts as an intermediary, facilitating transactions between buyers and sellers for a fee or commission.

Internet Company

A business that primarily operates online, providing products or services through the web.

Merchant Wholesalers

Businesses that buy goods in bulk from manufacturers and sell them, usually in smaller quantities, to retailers or other businesses, but not directly to consumers.

Agents and Brokers

Intermediaries who facilitate the buying and selling process in various markets, often dealing in real estate, insurance, or securities.