(a) What are the key features
(a) What are the key features of an efficientmarket?
(b) If a market is efficient how will share prices vary?
(c) Most investment managers are now looking to invest in arange of different countries. Describe the three categories of riskthat they need to consider and give three examples of eachcategory.
Answer:
a) A market is indeed said to be efficient in a perfectcompetition if it gets to operate under the conditions
1) Perfect information has to be available both to the consumersas well as the producers and the should be no scope forinadequacy
2) In a perfect competition, there should be homogeneity of theproduct
3) There should be numerous competitors with no priceleadership
4) There should be freedom of entry and exit.
(b) If a market is efficient, the share prices vary accordinglywith the changes in the supply and demand of the product on thewhole.
(c) (I) Budget Risk : A budget risk is indeed any sort of riskthat highly influences your financial performance.
Eg- the risk of economic downturn, the risk of new low pricesproduct entering the market.
(II) Schedule risk : A schedule risk is indeed a overallfinancial risk where your financial status might not change but maybe the cash flow changes. Schedule risk might also take the form ofexternal factor risk
Eg- Risk with a contractor changing the schedule due toremodeling
(Iii) Quality risk : It is nothing but the issues with thequality of a product which can ultimately trigger to budgetrisk
Eg- Increased warranty expense due to poor quality products.
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