If the Financial Markets Are Efficient, Then Investors Should Expect

question 32

Multiple Choice

If the financial markets are efficient, then investors should expect their investments in those markets to:

• A) earn extraordinary returns on a routine basis.
• B) generally have positive net present values.
• C) generally have zero net present values.
• D) produce arbitrage opportunities on a routine basis.

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Definitions:

Reserves

Assets held by a financial institution or an individual as a buffer for potential future liabilities or emergencies.

Leverage

The use of borrowed money to supplement existing funds for purposes of investment.

Bank Investments

Financial assets purchased or held by banks, including bonds, stocks, real estate, and other securities, with the aim of generating income or capital appreciation.

Leverage Ratio

The ratio of assets to bank capital.