In: Finance
1. Cost and benefit of requirements to carry contingent capital or similar mechanisms
2. Cost and benefits of limits on size of financial institutions
3. How are foreign exchange rates determined? A simple, short answer is - by demand and supply. But what are the key factors underlying demand and supply?
4. The EMH continues to remain a hotly debated topic for over 50 years. A counter argument to the EMH is the following: If the EMH were true, then how can one explain the tremendous success enjoyed by investors such as Warren Buffett and Peter Lynch?
5. How did the bond market perform in 2016? Was it as expected? Why do you think it performed the way it did? How do you think it will perform in the coming year?
During the last 7 years the US Federal Debt has doubled. Economic theory says that as the demand for funding increases the rate of interest will go up. During this time there has been almost no increase in interest rates. This then must be cause something has offset the increase in US debt. What would you think that might be? What has kept interest rates from rising while US debt has risen?
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy
Question
Contingent capital or similar instruments such as contingent convertible bonds, contingent surplus notes or enhanced capital notes, provides mechanism that converts the instrument to equity upon occurrence of some predetermined specific event trigger.
Historically, these instruments began to grab attention and popularity post 2008 financial crisis. Prior to that companies protected themselves from capital deficiency under stressed conditions by reinsurance arrangements, hedging programs and capital infusion. Those were effective when systemic risk is moderate in the entire financial system. However, the 2008 financial crisis showed that when systemic risk is prevalent, the cost of raising capital may be unnaturally high along with high liquidity risk and counterparty risk which might put the company in a weak solvency position.
Benefits
Contingent capital or similar instruments help the companies to:
Cost:
However, companies opting for such instruments have to:
Question
Benefits
Following are the benefits of limiting the size of financial institutions:
Costs:
Limiting the size of financial institutions:
Question
Central banks apply control over both inflation and exchange rates by manipulating the interest rates.
Higher interest rates offer lenders in market a higher return relative to other markets worldwide. Therefore, higher interest rates attract foreign capital and rise in exchange rate. However, if inflation in the market is much higher than other impact is lower.
Deficit in the current account means a country is spending more on foreign trade than it is earning and that it is borrowing capital from foreign sources to make up the deficit. Thus, the country requires more foreign currency than it receives through sales of exports, and it supplies more of its own currency than foreigners demand for its products. The excess demand for foreign currency lowers the country's exchange rate.
Country with a lower inflation rate experiences rising currency value, as its purchasing power increases in relation to other currencies. Countries with higher inflation experience depreciation in their currency in relation to the currencies of their trading nations.
Question
Efficient market hypothesis says that it is impossible to find undervalued stocks.
Warren Buffett made money by working the opposite.
Question is which one is true?
Warren Buffett follows the concept of intrinsic value of companies. Being aware of intrinsic value of stocks helps investors gauge future. Warren Buffett believes in correct evaluation of intrinsic value of companies. When market price of stocks falls below its intrinsic value it is called as undervalued. People who cannot estimate intrinsic value accurately, perhaps finds solace in concepts like efficient market hypotheses. For sure, estimating intrinsic value is difficult.
But as per Efficient Market Hypothesis predicting future is impossible. Efficient market hypothesis assumes that all investors perceive all available information in precisely the same manner which is the fallacy