CFA Level I · CFA Level I Exam · Ethics and Trust in the Investment Profession
Which of the following is most likely a benefit that efficient capital markets provide to those supplying investment capital?
Efficient capital markets let investors transfer and transform risk, because the markets serve as an information exchange, create investment products, provide liquidity and limit transaction costs. They do not eliminate risk or guarantee protection from misconduct by market participants.
- AElimination of investment risk through diversification across all assets
- BThe opportunity to transfer and transform risk, with lower transaction costs and greater liquidityCorrect
- CGuaranteed protection from losses resulting from misconduct by market participants
Explanation
The text lists benefits to capital providers: the ability to transfer and transform risk, because markets act as an information exchange, create investment products, provide liquidity and limit transaction costs. Markets do not eliminate risk or guarantee protection from misconduct.
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