It does mean that a person will take on risk only if

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: risk averse. Risk aversion does not mean that a person will refuse to accept risk. It does mean that a person will take on risk only if it is accompanied by compensation, usually in the form of a higher expected return. Only D is consistent with these assumptions. See page 7. 3 4 3 INCORRECT Which of the following is not an important function of an efficient financial system? A) providing a wide range of financial instruments with characteristics that suit the needs of investors B) providing economic and financial information to market participants C) facilitating economic growth by encouraging savings D) allowing companies to produce goods Feedback: When a company provides goods or services and services regardless of the profits and therefore its and that are in high demand, its demand for these goods services s hare price will be higher than otherwise. The higher share price and positive outlook will make it easier for the company to raise more capital and invest to increase its output. Thus the statement in D is not applicable to an efficient financial system, making it the correct answer. See page 8. 4 4 4 INCORRECT Debt may be either secured or unsecured. Which of the following is correct? A) secured debt is debt that can be traded in the capital market B) the promise that secured debt will be repaid is supported by a claim over specified assets Feedback: Secured debt is less risky for risky for the lender than unsecured debt the borrower’s promise to repay C) secured debt is more lenders than unsecured debt because the loan is supported by a claim over certain assets or a guarantee from a third party. This means that if the D) the risks of secured and unsecured have been pledged as security and sell them. Secured borrower defaults the lender can seize the assets thatdebt are essentially the same debt may be marketable but this is not necessarily the case. In summary, A, C and D are incorrect and B is the only correct answer. See page 13. 5 4 5 INCORRECT Financial ins...
View Full Document

This note was uploaded on 03/26/2012 for the course FIN 1612 at University of New South Wales.

Ask a homework question - tutors are online