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____ 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
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
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
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