Question

Report of investment and stock markets if you have any website or report pdf to help me with the following :

the concept of financial markets

financial market goals

functions of the financial markets factors spread financial markets

the concept of efficient stock market

financial market efficiency requirements

efficiwency formulas for securities market types of efficient stock markets

the relationship or the effect of the quality of financial reports on investing decisions in the stock market

or the effect of the quality of accounting information on investment decisions

Answer 1

To understand the structure and the importance of financial markets, we must first understand their role in our economy. Now every economy has two basic sectors when it comes to funds – savings and investment. Savings is what we refer to when individual households save money. And investment is the capital that industries require to start and run their businesses.

Now the economy must provide a link between savings and investments. One obvious way to convert savings into investment is via banks. Alternatively, savings can be turned into investments through financial markets. Households will use their savings to buy financial instruments and commodities such as shares, stocks, debentures etc. This is the whole concept of the financial market.

Goals of financial market:

• Stocks and Bonds are Capital. You can use them, like currency, to buy and sell things (like a company, for example). If you know the daily price of these units of capital, they become readily negotiable: liquid. This puts you in a position to negotiate fairly and reliably.
• Financial “goods” are traded in a standardized, regulated forms known as “securities.” A bond, for example, is more than an ordinary IOU or loan document. Instead, it is packaged in a standardized fashion such that it can be readily accepted and priced, based on it’s merits. Same thing with stocks, futures contracts, options, etc.
• Financial markets—and the trades done within them—are public and highly regulated. This supports their valuable function of providing liquidity to financial assets (e.g., loans, shares of ownership, commodity prices, etc.). This enables all interested parties (creditors, investors, vendors, etc.) to place a reliable value on those assets.

Functions of Financial Markets:

Mobilizing Funds: In a successful economy, money should never sit idle. Investors that have savings must be linked with industries that require investment. So financial markets will enable this transaction, where investors can invest their savings according to their choices and risk assessment. This will utilize idle funds and the economy will boom.

Price Determination:The financial commodities traded in a financial market get their prices from the rules of demand and supply. The investors or the household are the suppliers of the funds, and the industries are the ones demanding them. The interaction between the two and other market factors will help determine the prices.

Easy Access:Both investors and industries need each other. The financial market provides a platform where both the buyers and sellers can find each other easily without spending too much time, money or effort

Efficient Stock market:

Known as the efficient market hypothesis, the theory of stock market efficiency states that the price you see on an asset today is its true value, reflecting any data that could drive its price up or down. If the efficiency theory is true, all that work experts do to analyze the market is for nothing. Only insider information can help someone get a picture of a stock’s performance that isn’t reflected in what you can already see.

If the EMH was correct, it would be impossible to beat the market, as traders like Warren Buffett have managed to do. However, there are experts who insist there’s plenty of evidence to support EMH. Those experts advise investors to focus their efforts on a low-cost, passive portfolio rather than try to guess the market and take big risks.

Market efficiency does not require that the market price be equal to true value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can be greater than or less than true value, as long as these deviations are random.

Impact of accounting information on investment decisions:

There are some areas where accounting information helps decision making. It provides investors a baseline of analysis for – and comparison between – the financial health of security-issuing institutions. Financial accounting helps creditors assess the solvency, liquidity and creditworthiness of businesses. Financial accounting ( as well as managerial accounting) helps organizations make business decisions about how to allocate scarce resources. Financial accounting information helps in making Investment decisions as fundamental analysis depends heavily on a company’s balance sheet, its statement of cash flows and its income statement. All of the financial statements for publicly traded companies are created and reported according to the financial accounting standards set forth by the Financial Accounting Standard Board (FASB).

Accounting information also aids lending or dividend decisions as number of common accounting ratios that creditors rely on, such as the debt-to-equity (D/E) ratio and times interest earned ratio, are derived from the financial statements. Even for privately owned businesses that do not necessarily follow the requirements of the FASB, no lending institution assumes the liability of a large business loan without critical information provided by financial accounting techniques.

Reliable accounting serves a practical function for the firms themselves. Beyond the regulatory and compliance hurdles that financial accounting helps clear, financial accounting also helps managers create budgets, understand public perception, track efficiency, analyze performance and develop short- and long-term strategies.