Which of the Following Statements Is FALSE

question 82

Multiple Choice

Which of the following statements is FALSE?

• A)Financial transactions are not sources of value,but merely serve to adjust the timing and risk of the cash flows to best suit the needs of the firm or its investors.
• B)The NPV of trading a security in a normal market is zero.
• C)We cannot separate a firm's investment decision from the decision of how to finance the investment.
• D)In normal markets,trading securities neither creates nor destroys value.

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Definitions:

Nominal Risk-Free Rate

The nominal risk-free rate is the rate of return on an investment with no risk of financial loss, not adjusted for inflation.

Forward Rate

The agreed-upon interest rate for a financial transaction that will be conducted at a future date.

Net Present Value

A financial metric used to evaluate the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period of time.

Uncovered Interest Rate Parity

A financial theory stating that the difference in interest rates between two countries will be equal to the expected change in exchange rates between their currencies.