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. Display the position explicitly Example: I borrow 7800000 HKD at time t = t 0 at an interest rate r t0 . After one year I pay back 7800000(1 + rt o ). At

a) Product orientated businesses tend to be produce products and inward looking that they hope will sell in the marketplace. For example, Sony hoped that its $101,500 audio systems

Hedge funds are short two types of funding options. Describe in detail what these options are. Describe why these options become more valuable during a financial crisis. During

Remaining differences with US GAAP IFRS 8 comprise intangible assets as part of the non-current assets. SFAS 131 only refers to tangible assets. IFRS 8 requires method

Crown Co. is expecting to receive 100,000 British pounds in one year. Crown expects the spot rate of British pound to be $1.49 in a year, so it decides to avoid exchange rate risk

Question: a. Explain what the debt overhang problem is (following the lines of Myers 1977) make sure that you specify what the relevant conflict of interest is and what are the

Using details from table 8, let us compute the 6-month forward rate. Simple arbitrage principle, like the one used to compute the spot rates are used in this proc

What are the benefits of the JIT inventory control system? The just-in-time that is abbreviated as JIT inventory control system lowers inventory carrying costs and tends to inc

On-the-run treasury issues are the most recently auctioned issues of a given maturity. They include Treasury bills of 3-month, 6-month and 1-year maturity;  treas

Determine the operating cash flow: E4-1 The installed cost of a new computerized controller was $65,000. Calculate the depreciation schedule by year assuming a recovery period