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equity
12 Sep 2019
A well-functioning financial system has complete markets with effective financial intermediaries and financial instruments, allowing:
- Investors to move money from the present to the future at a fair rate of return.
- Borrowers to easily obtain capital.
- Hedgers to offset risks.
- Traders to easily exchange currencies and commodities.
Efficient financial systems have tools to address financial issues and liquid markets with low trading costs. They provide timely financial information, ensuring that market prices accurately reflect available data. This way, prices respond to changes in fundamental value rather than just liquidity needs. Well-functioning markets promote efficient resource allocation, placing resources where they’re most valuable.
Question
Which of the following is least likely a characteristic of a well-functioning financial system?
- Instruments that solve financial problems.
- Market prices that always equal fundamental value.
- Markets where assets can be easily traded at low cost.
Solution
The correct answer is B.
Informational efficiency in well-functioning financial systems should allow investors to estimate fundamental values and cause price changes to correlate with changes in fundamental value. However, fundamental value estimates in well-functioning financial systems will not necessarily always match actual fundamental value.
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Sergio Torrico
2021-07-23
Excelente para el FRM 2Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
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2021-07-17
So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content.I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
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2021-07-16
A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
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2021-06-28
Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
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2021-05-10
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2021-03-24
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Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.
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