Asymmetric information makes it hard for investors to sell securities. Banks, meaning both investment and commercial, specialize in reducing asymmetric information. What methods do they have for reducing information asymmetries? Be sure to specify if the methods are designed to reduce the problems of adverse selection or moral hazard.
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Asymmetric Information means the possession of greater knowledge by one than the other.
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- Which of the following is TRUE about the strong form of market efficiency? Insider information cannot help investors to outperform the market This form of efficiency suggests that all public information is already reflected in current prices Fundamental analysis can be used to identify mispriced securities Technical analysis can be used to identify mispriced securitiescritically discuss why financial markets should be regulated in terms of asymmetric information, moral hazard and adverse selectionQUESTION Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?
- How can investors and market participants navigate the presence of anomalies and the potential for abnormal returns while managing associated risks effectively? Are there specific strategies or approaches that you find particularly effective in this content ?Why might a manager intentionally classify a trading security as an available-for-sale security? Select one: a. The manager may wish to prevent an increase in value from being reported on the income statement. b. The manager may wish to prevent a decline in value from being reported in shareholders' equity. c. The manager may wish to prevent an increase in value from being reported in shareholders' equity. d. The manager may wish to prevent a decline in value from being reported on the income statement.TRUE OR FALSE Financial sector creates products for the management of risk, thus risk can be abolished fully.
- The weak form of the efficient market hypothesis implies that: CHOOSE ONE A. Investors can achieve abnormal returns, on average, using technical analysis, after adjusting for transaction costs and taxes. B. Insiders, such as specialists and corporate board members, cannot achieve abnormal returns on average. C. No one can achieve abnormal returns using market information. D. NONE OF THE ABOVEApplying the capital asset pricing model requires that one find appropriate inputs for the risk-free rate, the market rate of return (and market risk premium), and beta. Why is beta, in particular, difficult to pin down? a. People don't have ready access to financial data and won't have any source for this information in the near future. b. The major internet sources of financial data are notoriously unreliable. c. Hackers have been known to manipulate financial data for their own purposes. d. People must rely on historical performance information, and they have to assume that historical relationships continue into the future.If the security market is efficient in the strong form, then _____. Group of answer choices a. it is impossible to consistently outperform the market by using technical analysis, which tries to find security mispricing by analyzing historical security price data b. it is impossible to consistently outperform the market by using fundamental analysis, which tries to find security mispricing by analyzing non-price public information c. it is impossible to consistently outperform the market by using inside information d. it is impossible to consistently outperform the market by using technical analysis, fundamental analysis or inside information
- Discuss how the free-rider problem aggravates adverse selection and moral hazard problems in financial markets.True or false : The market is inefficient because some investors in the market suffer from behavioral biases.market mispricing creates arbitrage opportunities, is this true and how. the actions of arbitrageurs contributes towards the removal of mispricing, is this true and how.