Market efficiency, Financial Management

Market Efficiency

Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency present in the financial markets. A market is considered as perfect if it has the following characteristics:

  • All players in the market are price takers.
  • This situation will be possible when all the players in the market have all the information relating to the security and the market price of the security reflects all the available information.
  • No significant regulations on the transfer of funds exists.
  • The flow of funds within the market and between the markets should not be restricted by government regulations. There should be free flow of funds from one market to the other.
  • Very low/insignificant transaction costs.

Finally, transaction costs will depend on the trading and settlement processes. Transparency in the trading mechanism and shorter settlement periods are critical for low transaction costs.

However, most of the financial markets are still imperfect and are yet to be developed. The imperfections present in the markets may have an adverse impact on the players of these markets. Further, due to the interlinkage of the financial markets, the factors affecting one market may have a direct or indirect impact on the others also.

 

Posted Date: 9/11/2012 3:12:12 AM | Location : United States







Related Discussions:- Market efficiency, Assignment Help, Ask Question on Market efficiency, Get Answer, Expert's Help, Market efficiency Discussions

Write discussion on Market efficiency
Your posts are moderated
Related Questions
Q. What is the importance of investigation of incidents? 1. Incident investigation is the process of identifying the underlying causes of incidents and implementing steps to pr

Question: Part A: Justify and criticize the usual assumption made in Financial Management literature that the objective of a firm is to maximize the wealth of its sharehol

Explain why we measure a project's risk as the change in the CV. We compute a project's risk as the change in the coefficient of variation for the reason that this focuses on t

Depository institutions Depository institutions: intermediaries with a important proportion of their funds derived from customer deposits - include commercial banks - savings i

State about the Detection risk This is the risk that auditors 'substantive procedures don't detect a material misstatement in an account balance or class of transactions. It is

Q ualification criteria We discussed how to prepare the bid documents. Let us now see what criteria should be considered to qualify a bidder. You will have to open bidding

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

Working of ASIC ASIC as an independent government body enforces and regulates company and financial services laws to protect consumers, investors and creditors. It keeps the pu

A fixed income security investor can expect to receive a rupee returns from the following sources: (a) Interest payment, (b) Capital gain or loss at maturity or when so

Debenture A kind of debt instrument that is not secured by physical any asset or collateral is known as debenture. Debentures are backed by the general creditworthiness and sta