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 these are correct.

Question

Quizplus · Accepted Answer

A value weighted index gives more importance to companies with higher market capitalization. Therefore, larger companies have a disproportionate influence on the index, while smaller companies have a relatively smaller impact. Exchange rate fluctuations typically affect all companies in the index, regardless of their size, and do not have a large or small impact based solely on the weighting methodology of the index.

In a Value Weighted Index