RESPONSIBILITY OF FINANCIAL STAFF

• FORECASTING AND PLANNING: is about predicting the future as accurately as possible, given all
of the information available. PLANNING is a response to forecasts and goals. Planning involves
determining the appropriate actions that are required to make your forecasts match your goals.
The financial manager must interact with other executives as they look ahead and lay the plans
which will shape the firm’s future.
• INVESTMENT AND FINANCING DECISIONS: Investment decisions revolve around how to best
allocate capital to maximize their value. Financing decisions revolve around how to pay for
investments and expenses. A successful firm usually has rapid growth in sales, which requires
investments in plant, equipment and inventory.
• CO-ORDINATION AND CONTROL: The financial manager must interact with other executives to
ensure that the firm is operated as efficiently as possible. All business decisions have financial
implications, and all managers financial and otherwise need to take this into account.
• TRANSACTIONS IN FINANCIAL MARKETS: The financial manager must deal with the money and
capital markets. Each firm affects and is affected by the general financial markets where funds
are raised, where the firm’s shares and debentures are traded, and where its investors either
make or lose money.
• RISK MANAGEMENT: The financial manager is usually responsible for the firm’s overall risk
management programmes, including identi-fying the risks that should be hedged and then
hedging them in the most efficient manner.

MARKET EFFICIENCY

Market efficiency refers to the degree to which market prices reflect all available, relevant
information. If markets are efficient, then all information is already incorporated into prices, and so
there is no way to "beat" the market because there are no undervalued or overvalued securities
available.

FACTORS OF MARKET EFFICIENCY

• NUM OF MARKET PARTICIPANTS: The larger the number of investors, analysts, and traders who
follow an asset market, the more efficient the market.
• AVAILABILITY OF INFORMATION: The more information is available to investors, the more
efficient the market. In large, developed markets such as the New York Stock Exchange,
information is plentiful, and markets are quite efficient. In emerging markets, the availability of
information is lower, and consequently, market prices are relatively less efficient.
• IMPEDIMENTS TO TRADING ARBITRAGE: refers to buying an asset in one market and
simultaneously selling it at a higher price in another market. This buying and selling of assets will
continue until the prices in the two markets are equal.
• TRANSACTION AND INFORMATION: To the extent that the costs of information, analysis, and
trading are greater than the potential profit from trading misvalued securities, market prices will
be inefficient
WEAK-FORM, SEMI-STRONG-FORM, AND STRONG-FORM MARKET EFFICIENCY

• WEAK-FORM: The weak form o f the efficient markets hypothesis (EMH) states that current
security prices fully reflect all currently available security market data.
• SEMI-STRONG FORM: The semi-strong form of the EMH holds that security prices rapidly adjust
without bias to the arrival of all new public information. As such, current security prices fully
reflect all publicly available information
• STRONG FORM: The strong form of the EMH states that security prices fully reflect all
information from both public and private sources