Financial Markets and Institutions. True or false? (LO2-1) a) Financing for public corporations must flow through financial markets. b) Financing for private corporations must flow through financial intermediaries. c) Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London. d) Derivative markets are a major source of finance for many corporations. e) The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity. f) The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.

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Ashlyn

Business

4 March, 19:08

Financial Markets and Institutions. True or false? (LO2-1) a) Financing for public corporations must flow through financial markets. b) Financing for private corporations must flow through financial intermediaries. c) Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London. d) Derivative markets are a major source of finance for many corporations. e) The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity. f) The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.

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Alani Kemp · Answer 1

The following statement is False.

(a). Financing for public corporations must flow through financial markets.

Reason: Financing for public corporations can be done through various sources of finance like financial markets, financial institutes and internal funds. It is not compulsion to finance the capital of public companies through financial markets.

The following statement is False.

(b). Financing for private corporations must flow through financial intermediaries.

Reason: Financing for private corporations does not necessarily need to flow through financial intermediaries. This can be done either directly or indirectly, i. e. with or without intermediaries.

The following statement is False.

(c). Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and London.

Reason: Not necessarily, there are several FOREX exchanges around the world where foreign exchange trading occurs.

The following statement is False.

(d). Derivative markets are a major source of finance for many corporations.

Reason: Derivative markets are not necessarily a major source of finance for many corporations, since there are other financial institutions such as banks etc.

The following statement is False.

(e). The opportunity cost of capital is the capital outlay required to undertake a real investment opportunity.

Reason: The opportunity cost of capital is defined as the incremental return on investment that a firm foregoes when it decides to use funds for a project, rather than investing cash in a marketable security.

The following statement is False.

(f). The cost of capital is the interest rate paid on borrowing from a bank or other financial institution.

Reason:Cost of capital is the required return necessary to make a capital budgeting project.