Question

In: Economics

1.4. Which of the following is not likely to be a reason for investors to use...

1.4. Which of the following is not likely to be a reason for investors to use the global capital market?
A. They have a higher cost of capital as compared to purely domestic capital markets.
B. They have a much wider range of investment opportunities than in a purely domestic capital market.
C. They can diversify their portfolios internationally.
D. They can reduce their risk through portfolio diversification to below what could be achieved in a purely domestic capital market.

Solutions

Expert Solution

The answer with explanation of the multiple choice question asked above is : (Option A - They have higher cost of capital as compared to purely domestic capital markets) because a higher cost of capital is typically a signal of the higher risk associated with a firms operations. Investors tend to require an additional return to neutralize the additional risk. Thatswhy investors doesn't like to use the global capital market. (Option B - They have a much wider range of investment opportunities than in a purely domestic capital market) is not the correct answer because if investor would have wider range of investment opportunities than in purely domestic market they would use global capital market. (Option C -They can diversify their portfolios internationally) is not the correct answer because if investor could diversify their portfolios internationally they would love to use global capital market. (Option D - They can reduce their risk through portfolio diversification to below what could be achieved in a purely domestic capital market) is not the correct answer because if investor could reduce their risk through portfolio diversification to below what could be achieved in a purely domestic capital market they would use global capital market.

Rahul Sunny answered 2 years ago
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