Couple of suspicious questions from Elan mock
I found the answers a bit strange in the following two questions. Could you please give your opinion?
1. When the Fed lowers the Fed Funds Rate, the exchange rate and aggregate demand most likely
Exchange Rate Aggregate Demand
A Falls Falls
B Increases Increases
C Falls Increases
Correct Answer: C
Explanation:
"When the Fed lowers the Fed Funds Rate the exchange rate falls (as ‘hot’ money flows out) and aggregate demand increases (as consumption, investment and net exports rise)."
My comment: if the interest rate decreases, USD depreciates (money flows out). However, a depreciating USD means that exchange rate (USD/EUR) increases. Hence, B should be correct?
2. Question
Statement 1: A company’s existing debt covenants that restrict it from issuing debt with similar seniority causes its marginal cost of capital to increase as additional capital is raised.
Statement 2: Deviations from a company’s target capital structure over the short-term cause the marginal cost of capital to increase as additional capital is raised.
Which of the following is most likely?
Answer choices:
? Only statement 1 is incorrect
? Only statement 2 is incorrect
? Both statements are correct
Correct Answer: Both statements are correct
My comment: CFA vol 4, p.67 says: "as the company experiences deviations from the target capital structure, the marginal cost of capital MAY increase".
Isn't it possible to construct a capital structure where by deviating from the target, the company may actually use the lower cost financing at some point, thus reducing the marginal cost? Thus, I would think that statement 2 is incorrect. |
发表于 2011-7-11 19:47
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