Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Profit

Start a Study Session Sign up for Question of the Day
Which of the following types of information provide a likely opportunity to earn abnormal profits on the market?
  1. The latest copy of a company’s annual report.
  2. News from the market that 100,000 shares of A&A were just traded in a single transaction.
  3. A top analyst that works for you advising you that he strongly believes A&A will increase its dividend soon.
  4. News from the market that a large new issue of the common stock of A&A Pty
  5. Your friend, the CEO of A&A, telling you the company is going to increase its dividend.
Explanation
C and E are both examples of advanced information. However, it is likely that it would be illegal to act on E, as it is insider information.

Key Takeaway: In order to make abnormal profit, information should not be available to the public. If the information is publicized, everyone can react to make profits from this information; and there will not be abnormal profit. In answers A, B, and D, this is all information that an efficient market will be aware of.
Previous Next
Was this helpful? Upvote!
Login to contribute your own answer or details
Start a Study Session Sign up for Question of the Day

Top questions

Related questions

Most popular on PracticeQuiz