In a value weighted index
A) Exchange rate fluctuations have a large impact.
B) Exchange rate fluctuations have a small impact.
C) Large companies have a disproportionate influence on the index.
D) Small companies have an exaggerated effect on the index.
E) None of the above

Question

Quizplus · Accepted Answer

In a value weighted index, large companies have a disproportionate influence on the index as their market capitalizations are given more weight. Exchange rate fluctuations do not have a direct impact on the index, as they affect individual companies differently. Small companies may have some impact on the index, but it would be proportionate to their market capitalization.

In a Value Weighted Index