Helping People Achieve Their Purposes Using the Financial System
The financial system helps people:
Determining Rate of Return
The price in the financial system is the rate of return. It is the result of interaction of the broad forces of supply and demand.
There are as many different prices (rates of return) as there are different types of assets in the financial system. For example, equities have higher rates of return than T-bills. All of the rates are determined in the financial system.
Prices rapidly adjust to new information. The prevailing price is fair because it reflects all available information regarding the asset.
Capital Allocation Efficiency
In the financial markets investors distinguish good firms from bad firms. This lets the market channel capital to good firms and away from problem firms.
Timely and accurate information is available on the price and volume of past transactions and the prevailing bid-price and ask-price. Such information facilitates the rapid flow of capital to its highest value uses.
| Shaan23: I've finished this section. And some of the questions people had were easily answered if they read the Derivatives sections first(Unit 17).|
This section is a joke. and honestly Unit 17 was the best read and the most difficult. I would not do it at the end.