Assignment:
Q1. (a) Distinguish between different levels of market efficiency. Give examples to illustrate your answer.
(b) With close reference to the Efficient Market Hypothesis literature and by using relevant empirical evidence and financial data, critically assess the efficiency of an emerging stock exchange market of your own choice.
Q2. Compare and contrast key role and functions of the capital markets with those of the money markets. Critically explain how money market activities might influence asset prices in the capital markets. Give examples to illustrate your answer.
Q3. (a) Explain the nature of potential risks in international transactions and critically discuss how international traders might manage such risks via forward foreign exchange markets.
(b) Distinguish between the spot and the forward foreign exchange rates and examine the nature of the relationship between these two rates.
Q4. (a) Explain what you understand by each of the following terms.
In each case give an example relating to the financial markets to illustrate your answer.
• asymmetric information
• moral hazard
• adverse selection.
(b) With close reference to your answer in part (a) above, discuss why there is a need to regulate financial markets.