the economics of money, banking, and financial markets

200 $

© 2014 Pearson Canada Inc.$

5. 
   

   ____ occurs when market participants observe returns on a security that are larger than
   what is justified by the characteristics of that security and take action to quickly eliminate the
   unexploited profit opportunity.
   A) Arbitrage
   B) Mediation
   C) Asset capitalization
   D) Market intercession
   Answer: A
   Diff: 2 Type: MC Page Ref: 149
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


6. 
   

   The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an
   efficient market, ____.
   A) it will tend to go unnoticed for some time
   B) it will be quickly eliminated
   C) financial analysts are your best source of this information
   D) prices will reflect the unexploited profit opportunity
   Answer: B
   Diff: 2 Type: MC Page Ref: 149
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


7. 
   

   Financial markets quickly eliminate unexploited profit opportunities through changes in
   ____.
   A) dividend payments
   B) tax laws
   C) asset prices
   D) monetary policy
   Answer: C
   Diff: 1 Type: MC Page Ref: 149
   Skill: Applied
   Objective List: 7.2 Determine how information in the market affects asset prices

   
   


8. 
   

   The elimination of unexploited profit opportunities requires that ____ market participants
   be well informed.
   A) all
   B) a few
   C) zero
   D) many
   Answer: B
   Diff: 1 Type: MC Page Ref: 149 - 153
   Skill: Recall
   Objective List: 7.2 Determine how information in the market affects asset prices