Relatively high costs of capital are more likely to occur in:
A) highly illiquid domestic securities markets.
B) highly liquid domestic securities markets.
C) unsegmented domestic securities markets.
D) none of the above

Question

Quizplus · Accepted Answer

Highly illiquid domestic securities markets are characterized by limited trading activity and fewer buyers and sellers, which increases the risk and uncertainty for investors, leading to higher costs of capital. In contrast, highly liquid domestic securities markets and segmented domestic securities markets may provide greater opportunities for diversification and risk-sharing, leading to lower costs of capital. Therefore, option A is the best choice.

Relatively High Costs of Capital Are More Likely to Occur