Question

Evaluate the informational and consumption timing roles of financial markets with reference to the recent COVID19 pandemic

Answer 1

During pandemic, there will have consequences both in short and medium and long term. In particular, we need to understand the reaction of financial market to an event that affects the whole world and not individual countries.

- The financial market were running much over the upper bound prices right before the recent decline in past 3 months which we can see in Dow Jones index( one of the most important indices in global market).

- Technology sector has become very too strong, compared to other sectors of the economy. So, it is common, when one sector would become too strong and it would damage the economic system. For eg: Year 2008, when financial services sector became too strong which led to credit crisis of the time.

- The economy is highly likely to collapse either as a result of drainage of resources to control and treat to Covid-19 pandemic or the loss of productivity as a result of social distancing.

-Any good or sector which are related to cure pandemic is going high in the market. Like; Pharmaceutical

- This is also evidence by the fact that the Fed decreased very recently Interest rates to a zero level and the market keep nosediving. This is an indication that markets are already far sighting and factoring the long- term impacts of current world events because of coronavirus pandemic.

- Declining stock prices which is a likely to increase the investment potential of global corporations by attracting more capital. However the projected slow down in the global economy will adversely affect demand and production and eventually push the world into a recession.