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Assignment on Financial Markets

   

Added on  2020-12-29

18 Pages4009 Words76 Views
Financial Markets

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................1Q1 A) Different level of market efficiency............................................................................1B) Critically evaluate efficiency of London Stock Exchange (LSE).....................................2Q2 Key roles and functions of capital markets with money markets and evaluate how moneymarkets influence asset price in capital markets....................................................................4Q3 A) Nature of potential risks in international transaction and how traders manage risks byforward foreign exchange markets.........................................................................................5................................................................................................................................................7................................................................................................................................................8................................................................................................................................................8................................................................................................................................................9B) Eurocurrency market and explain its usefulness for conducting international tradetransactions.............................................................................................................................9..............................................................................................................................................10..............................................................................................................................................11..............................................................................................................................................11Q 4 Discussing terms in financial markets...........................................................................11CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................14

INTRODUCTIONFinancial markets are crucial for meeting requirements of the borrowers in effective way.Present report deals with importance of money and capital market collectively financial marketswhich is required by organisation and economies to meet funds' requirement. M&S (Marks &Spencer) Company is chosen which is engaged in retail industry and historical share prices aretaken out to analyse performance. Different forms of EMH are explained and efficiency of LSEstock market is discussed as well. Potential risks in international market is analysed along withforward foreign exchange markets. Eurocurrency market is explained and its usefulness inconducting global trade transactions. Thus, financial markets are vital for channelising funds ineffective manner. MAIN BODYQ1 A) Different level of market efficiencyThe EMH (Efficient Market Hypothesis) is effective market in which current price ofshares are listed which help to clarify investors whether they should invest in the particularcompany or not. This is essentially required so that investment may be made in that organizationwhich could provide higher returns to them by injecting operations quite effectually. EMH formsof market was developed by Eugune Fama in 1955. He stated that stock of the company aretraded at fair only. This cannot be used for carrying technical analysis and as such investorscannot decide either to sell shares at inflated price or purchase the same at undervalued prices. Inrelation to this, investors have no other option to make riskier investment. The different forms ofmarket are weak, semi-strong and strong which can be explained below-1. Weak form-This form of market is termed as weak as no concrete information is incorporated incurrent share price of firm which can be used by investors to carry out analysis of viability oforganisation (Slabinski. 2016). It is called as weak form as historical data related to shares ispresent which lays inaccurate information to investors. This cannot be used to make technicalanalysis as both private and public related data are not included in current stock price insteadonly past data is present which makes difficult for shareholders to assess efficiency of firm'sperformance. The main example of this market is that just by relying historical variations of price1

of M&S Company, prediction of future cannot be made as no value can be garnered throughsuch variations. 2. Semi-strong form-This market is much relevant in comparison to weak form because publicly availableinformation is traded in the current stock of prices. It is helpful as accurate information which ismade available to public are incorporated in. The public information relates to financialstatements reflecting net earnings of firm which is beneficial as stock price data can be presentedto investors. In addressing to this, no delay is made with relation to disclosure of data. Moreover,partly private information is disclosed in share price data as well (Armour, Mayer and Polo,2017). For instance, when M&S Company releases net income, stock price tend to change aftertrading hours in the share market. 3. Strong form-This form of market is termed as strong form as both public and private information areincorporated in share prices in the best possible manner. It is helpful to assess efficiency oforganisation's performance as accurate price of stock is disclosed which is useful for theinvestors to easily conduct technical analysis of the market in effective way. Private informationmeans that it is confidential one and is known to top management only. It is available within thehands of Board of Directors like future issue of equity shares and internal information. Forinstance, M&S Company's management is planning for further share issue and as such, currentprices reflect true position of firm (Arthur, 2018).B) Critically evaluate efficiency of London Stock Exchange (LSE)The stock market is one where securities are traded in. LSE is one of the largest stockexchange and oldest as it dates back to almost 300 years since its formation. In this stock market,around more than 3000 organisation are listed from numerous nations for the main objective oftrading and conducting businesses to earn huge profits quite effectually. Furthermore, it is afinancial institution ahead of several largest markets in the world. In addressing this, efficiencyof LSE can be analysed as more of the companies listed on the stock exchange are performingwell enough and as such, it can be stated that LSE is one of bigger financial institution.Moreover, market capitalization of 3.5 trillion in the present year and efficiency can be seen. The2

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