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:

Great Depression

A severe worldwide economic downturn that lasted from 1929 to the late 1930s, marked by widespread unemployment and poverty.

Stock Market Crash

A sudden and significant decline in the stock market prices, leading to a loss of wealth for investors.

Hoover

Refers to Herbert Hoover, the 31st president of the United States, who is often associated with the early years of the Great Depression.

Economic Prosperity

A state of flourishing financial health and growth, often characterized by a high standard of living and low unemployment rates.