If investors ________, we would assume that do not make systematic mistakes when forecasting exchange rates. A) have rational expectations B) have complete knowledge of all possible bid and ask quotes C) know that interest rate differentials provide information about the intensity of devaluations D) anticipate events that occur ANSWER Answer: A
The ________ holds that it is the covariance of an asset’s return with that of the market portfolio that determines the asset’s risk premium. A) Law of One Price B) Law of Iterated Expectations C) Capital Asset Pricing Model D) Interest Rate Parity Model ANSWER Answer: C
Controlled disbursing involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively. Indicate whether the statement is true or false ANSWER TRUE
Controlled disbursing is a method of consciously anticipating the mail, processing, and clearing time involved with the payment process. Indicate whether the statement is true or false ANSWER FALSE
What is the name given to the risk associated with an asset’s return arising from the covariance of the return on a large, well-diversified portfolio? A) covariance B) systematic risk C) idiosyncratic risk D) risk premium ANSWER Answer: B
Disbursement float is experienced by a payee and is a delay in the actual withdrawal of funds. Indicate whether the statement is true or false ANSWER FALSE
Mail float is the delay between the deposit of a check by a payee and the actual availability of the funds. Indicate whether the statement is true or false ANSWER FALSE
Collection float results from the lapse between the time that a firm deducts a payment from its checking account ledger and the time that funds are actually withdrawn from its accounts. Indicate whether the statement is true or false ANSWER FALSE
The empirical evidence indicates that interest rate parity is the norm, especially during periods of financial market ________. A) arbitrage B) turbulence C) profit-taking D) tranquility ANSWER Answer: D
What is the market portfolio? A) the large, well-diversified portfolio that investors should hold according to finance theory B) the large, well-diversified portfolio without international securities C) the portfolio that represents a global portfolio D) the portfolio with strictly domestic securities ANSWER Answer: A
