Question #35
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 16
Status: Unattempted
Correct Answer: B
Question
Tamay Farthani, CFA, is studying the economic growth rate in several developing and developed countries. She believes there is strong evidence that well developed financial markets enhance growth prospects by channeling investment to projects with the highest risk-adjusted returns and by encouraging the use of leverage. Farthani is correct regarding developed financial markets impact on growth regarding:
Answer Choices:
A. both channeling investment to projects with the highest risk-adjusted returns and the use of leverage
B. only channeling investment to projects with the highest risk-adjusted returns
C. only the use of leverage
Explanation
Well-developed financial markets encourage investment and hence growth by channeling
investments to those projects with the highest risk-adjusted return. An increase in
leverage resulting from the development of capital markets may lead to higher risk but not
growth.