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Answer the following questions with detailed explanations. Keep the format reader-friendly (20% of the marks). For...

Answer the following questions with detailed explanations. Keep the format reader-friendly (20% of the marks). For example, use bullet points and highlights to structure your answers. (Suggested time for this question: 30 minutes)

1) Are markets efficient? Explain your answer.

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Answer #1

The market is said to be efficient when the expected return from the market is greater than the cost of issuing securities in the market.

In simple words, the market is efficient when the return from market exceeds its cost.

When the market is efficient, the investors tend to invest in the securities of the market, thereby increasing the demand of those securities. Subsequently, the price of the securities in the market tend to rise and creating a balance in the market.

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