1. Which of the following is true of an efficient market? (a) Securities have no

Question

1. Which of the following is true of an efficient market?

(a) Securities have no systematic risk.

(b) Market prices adjust quickly to new information as it becomes available

(c) Market prices of securities of companies in the same industry are all same.

(d) All information contained in past prices of a security is reflected in its current price but that there is both public and private information that is not.

2.Which of the following is a financial institution involved in indirect financing in a financial system? (a) futures and options, (b) investment banks, (c) Capital markets, (d) commercial banks

Explanation / Answer

1.Option B is correct.

In an efficient market, stock prices adjust new information very quickly without any lagging. Also it reflects all the past information whether public or private therefore, no investor can earn excessive returns by trading in stocks.

2. Option B is correct

Investment bank is a financial institution indirectly involved in financing for financial system. They encourages investors to buy stocks and if they don’t find buyer, they buy stocks they are underwriting.

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