Financial Markets: Theories, Models, and Efficiency

Upon successful completion of this module, students will be able to:

 

Knowledge-based outcomes

 

explain the operation of  financial markets and understand their importance.

explain key theories and models of financial markets including  the efficient market hypothesis,  and understand  key implications.

analyse the operations and the  efficiency of  financial markets

 

Skill-based outcomes

 

4. To identify and collect appropriate financial data and indices including share prices to carry out analysis of operations and  efficiency of financial markets.

 

 

Answer all questions and all parts.  

 

 

Q.2

 

Compare and contrast key role and functions of the capital markets with those of the money markets .Critically explain how quantitative easing (QE) operations in the money markets might influence bond prices and bond yields in the capital markets. Give examples to illustrate your answer.

                                                                                                      

                                                                                           

 

Q.3

 

Distinguish between spot and forward foreign exchange markets and critically discuss the relationship between spot and forward rates in these markets. Is forward foreign exchange market useful?                                                                                                                                                                                                        

 

                                                                                                    
 

 

Q.4

 

Explain what you understand by each one of the following terms:

 

a. Asymmetric information.

b. Moral hazard.

c. Adverse selection.

d. LIBOR.

 

 

Give examples to illustrate your answer.

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