Reading 70: LOS a (part 1) ～ Q1- 5 following, black, style

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1.If the international markets are segmented, which of the following is TRUE?

A)   The international capital asset pricing model will still be valid.

B)   Capital flows between nations must be large.

C)   Risk will not be priced the same in all markets.

D)   The extended capital asset pricing model must be used to price international assets.

2.Which of the following will NOT encourage international market integration?

A)   Widespread use of the international capital asset pricing model (ICAPM).

B)   Absence of trade restrictions.

C)   International political stability.

D)   Free international capital flows.

3.Suppose that all individual national economies and markets are efficient. If the national economies are efficient, then:

A)   the international market must be efficient.

B)   international capital flows must be free.

C)   the international capital asset pricing model must be valid.

D)   the international market can still be inefficient.

4.Which of the following is NOT an impediment to international capital mobility?

A)   Psychological barriers.

B)   Discriminatory taxation.

C)   Model risk.

D)   Political risk.

5.Suppose that international capital mobility is limited by the existence of discriminatory taxes and higher transaction costs. If these barriers are present, then which of the following is TRUE?

A)   The international markets can still be integrated.

B)   The international markets will not be integrated.

C)   The international markets must be inefficient.

D)   All international capital flows will cease.

spaceedu

1.If the international markets are segmented, which of the following is TRUE?

A)   The international capital asset pricing model will still be valid.

B)   Capital flows between nations must be large.

C)   Risk will not be priced the same in all markets.

D)   The extended capital asset pricing model must be used to price international assets.

The correct answer was C)

If markets are segmented, then assets with similar risk/return parameters will not necessarily be priced the same.

2.Which of the following will NOT encourage international market integration?

A)   Widespread use of the international capital asset pricing model (ICAPM).

B)   Absence of trade restrictions.

C)   International political stability.

D)   Free international capital flows.

The correct answer was A)

Widespread use of the ICAPM will not enhance market integration. If markets are integrated, then the ICAPM will be a useful model for international asset pricing.

3.Suppose that all individual national economies and markets are efficient. If the national economies are efficient, then:

A)   the international market must be efficient.

B)   international capital flows must be free.

C)   the international capital asset pricing model must be valid.

D)   the international market can still be inefficient.

The correct answer was D)

It is possible for the individual national markets to be efficient and for the international market to still be segmented and inefficient.

4.Which of the following is NOT an impediment to international capital mobility?

A)   Psychological barriers.

B)   Discriminatory taxation.

C)   Model risk.

D)   Political risk.

The correct answer was C)

The impediments to international capital mobility do not include model risk. Model risk exists in all markets.

5.Suppose that international capital mobility is limited by the existence of discriminatory taxes and higher transaction costs. If these barriers are present, then which of the following is TRUE?

A)   The international markets can still be integrated.

B)   The international markets will not be integrated.

C)   The international markets must be inefficient.

D)   All international capital flows will cease.

The correct answer was A)

International market integration does not require that all barriers to international capital mobility be eliminated. Integration only requires that sufficient capital flows exist to force efficient pricing of risk.