Question

How much do financial institutions have to do with the market efficiency of the stock market? - explain

why is insurance important?-explain

Answer 1

1. Financial institutions such as mutual funds and investment banks deal with large amount of volumes on the stock exchanges and hence their decision.will have a bearing on the stock price. For example if an analyst with JP Morgan comes and downgrades a stock with a weak outlook, the stock price will fall on that day as investors sell. So, the investment banks and mutual funds, must do extensive research before coming out with a call on the stock. Because the prices will become inefficient if they make a wrong call based on erroneous research.

2.Insurance is a hedge against risk and is therefore important. For example, a home is an assent and a homeowners insurance will protect the home in case of fire, theft and natural disasters.