The Pecking Order Hypothesis Suggests That Profitable Companies Will Borrow

question 106

True/False

The Pecking Order Hypothesis suggests that profitable companies will borrow less (because they have more internal funds available)and may have higher debt-equity ratios because they have more debt capacity.

---

Definitions:

Arbitrage

The practice of buying and selling assets in different markets or in different forms to exploit price differences for a profit.

Yen

The official currency of Japan, used in both physical and electronic forms for transactions within the country and internationally.

Real Exchange Rate

The rate at which two currencies can be traded for each other, adjusted for inflation differentials between the two countries.

Nominal Exchange Rate

The rate at which one country's currency can be traded for another country's currency, not adjusted for inflation.