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.

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Definitions:

Total Utility

The total satisfaction or benefit received by consuming a given total quantity of a good or service.

Market Equilibrium

A market state where the supply of goods matches demand, with no incentive for price to change.

Total Utility

The overall satisfaction or pleasure a person derives from consuming a certain amount of goods or services.

Marginal Utility

The additional satisfaction or utility received by consuming one more unit of a good or service.