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:

Par Value

The face value of a bond or stock, typically the amount paid at maturity for bonds and the nominal value for stocks.

Government Bonds

Debt securities issued by a government to support government spending and obligations.

General Level

Typically refers to the overall state or condition of something, often used in discussions about prices, economic conditions, or the level of activity in a market.

Convertibles

Securities, usually bonds or preferred shares, that can be converted into a specific number of shares of the issuing company's common stock.