Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 ASSIGNMENT COVER SHEET UNIVERSITY OF SUNDERLAND BA (HONS) BANKING AND FINANCE Student ID: 149078874/1 Student Name: Nguyen Thi Kieu Anh Module Code: APC 313 Module Name / Title: Financial Markets Centre / College: Banking Academy of Viet Nam Due Date: 16 Jan 2015 Hand in Date: 16 Jan 2015 Assignment Title: Individual assignment Students Signature: (you must sign this declaring that it is all your own work and all sources of information have been referenced) Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Financial Markets APC313 Prepared by: Nguyen Thi Kieu Anh Student ID: 149078874/1 Submission Date: 16th January 2015 Number of Words: 5,994 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 TABLE OF CONTENTS INTRODUCTION Question 1.1 Explain each of following terms: asymmetric information, moral hazard, and quantitative easing (QE) and give example related to financial markets 1.1.1 Asymmetric information 1.1.2 Moral hazard 1.1.3 Quantitative Easing (QE) 1.2 Discuss why there is a need to regulate financial markets Question 2.1 Distinguish between the spot and the forward foreign exchange rates 2.2 How are these rates related and determined in the foreign exchange markets 10 2.2.1 Purchasing Power Parity (PPP) 10 2.2.2 Fisher Effect 11 2.2.3 Interest Rate Parity (IRP) 11 Question 12 3.1 Explain the operations and activities of London Stock Exchange (LSE) market 12 3.1.1 Operations 12 3.1.2 Activities 12 3.2 With reference to the relevant theoretical and empirical literature and data, critically evaluate the efficiency of this stock exchange market 14 3.2.1 Theory of Efficiency Market Hypothesis (EMH) 14 3.2.2 Literature review of EMH research in LSE 15 3.2.3 Evaluate the efficiency of London stock exchange market 16 3.3 Explain recent upward surges in the FTSE 100 share price index 20 Question 21 4.1 Explain the operation and activities and the need for money market 21 4.1.1 Explain the operation and activities of money market 21 4.1.2 Why is there a need for such a market 22 4.2 Explain how a central bank might use the money market to conduct monetary policy in order to target the rate of inflation 22 CONCLUSION 24 REFERENCES 25 APPENDICES 29 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 INTRODUCTION This research learns about many aspects of financial markets Firstly, the research gives an overview about terms ‘asymmetric information’, ‘moral hazard’, ‘quantitative easing (QE)’ and identifies the need for regulating financial markets Secondly is distinguishing between spot and forward foreign exchange rates and explain how these rates are determined in foreign exchange markets Next is presenting a brief description of the operations and activities of London Stock Exchange (LSE) Besides, this research reviews studies about efficiency of LSE market, thereby evaluating LSE efficient based on recent data from FTSE 100 Index and three companies listed in FTSE 100, and explaining recent upward surges in FTSE 100 Finally, the research shows the basic understanding of the operations and activities of money market, the need for such a market and explains how a central bank might use the money market to conduct monetary policy in order to target the rate of inflation Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Question 1.1 Explain each of following terms: asymmetric information, moral hazard, and quantitative easing (QE) and give example related to financial markets 1.1.1 Asymmetric information According to Howells and Bain (2007, p.94), asymmetric information is the situation where one party to a financial transaction has better information than the other relevant to the transaction In particulars, the issuers of financial instruments will have better understand of those instruments, know exactly how mobilizing funds will be used, level of risk and return involved than the buyers The presence of asymmetric information derived from conflict of interest, in which some issuers of financial instruments furnish false or misleading information hurting the public to keep its own interests or gaining higher profit Asymmetric information results in two problems: adverse selection, which occurs before the transaction (ex ante), and moral hazard, which occurs after the transaction (ex post) (Mishkin and Eakins, 2012, p.25) In general, asymmetric information implies information inefficiency of financial markets and source of market failure The collapse of the Enron Corporation1 in 2001 is considered as a typical example of asymmetric information The existence of inequality information between management and shareholders is pointed out by Butler and Park (2005, p.2) that Enron managers and accountants deceived shareholders into believing the company was in much better financial shape than it actually was, having information about company debt and revenue that the general public did not have This action makes inflation of company stock value beyond its actual worth in order to increase management income and maintain management control As a result shareholders suffered a loss of $11 billion after this scandal was revealed (White, 2011, p.30) 1.1.2 Moral hazard Moral hazard means the borrower’s ability to apply the funds to different uses than those agreed upon with the lender, who is hindered by his lack of information and control over the borrower (Bebczuk, 2003, p.7) Moral hazard occurs after the transaction and refers to immoral of funds’ users and drawbacks of regulation like government safety nets For instance, there are no high risk-taking incentives for private enterprises because no one will rescue them from bankruptcy In contrast, banks use the money mobilized from their Enron was the seventh-largest U.S public company involved natural gas trading Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 clients to engage in risky activities without fear of illiquidity risk because they always believe that national government and central bank acting as “lender of last resort” would always bail them out the collapse to keep confidence of public in the banking industry (too-big-to-fail problem) Moral hazard happens in case of Bernard L Madoff Bernard Madoff was chairman of Bernard L Madoff Investment Securities LLC (BLMIS) - one of the top market makers on Wall Street and former non-executive Chairman of the NASDAQ stock exchange and many related committees (Boyko, 2009, p.34) Since early 1990s, based on his own reputation in Wall Street and the belief of investors that 10% interest was being added to their account each year; Madoff attracted and defrauded a lot of investors (estimated up to $64.8 billion) with Ponzi scheme - pay returns to investors from inflow of money of subsequent investors rather than from profit (Amir, 2009) It was not until 2008 that Madoff was arrested and sentenced to 150 years’ imprisonment for money laundering, perjury, false filings with the SEC and fraud (CNN, 2014) 1.1.3 Quantitative Easing (QE) QE is an extraordinary monetary tool used by central banks to stimulate the economy in the period of recession Normally, in response to economic difficulties, central bank will stimulate more lending and spending by reducing interest rates However, in case of central bank has cut interest rates as far as they can go (zero bound) but the economy still has not recovered, the central bank may pump money into the economy via so called Quantitative Easing (Plumer, 2012) Central bank creates new money electronically and pumps money into economy indirectly by using money market to buy financial assets from private sector business, including commercial banks, insurance companies, pension funds and non-financial firms Most of the assets purchased are low risk or risk free bonds (Bank of England UK, 2010) As commercial banks mobilize fund at a low interest, it will make low interest loan Central bank also injects money directly for enterprises by buying corporate bonds having low levels of risk It allows business to expand operations cheaply with aim of lowering product prices and creating more jobs, whereby stimulus of spending on goods and services Therefore, in theory, QE is possible to achieve two objectives, namely boost economic growth and reduce unemployment rate On the other hand, it also has following drawbacks: (1) Money creation of central bank lead to risk of inflation; (2) Attempting to Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 maintain low interest rate devalue the currency whereas aim of monetary policy is to stabilize currency value; (3) Low interest rate of deposit along with high inflation cause depositors to invest into foreign countries Thus, QE only succeed when positive side excels more than negative side In March 2009, Quantitative easing was first announced in UK at the same time as a last cut in rates sharply to 0.5% Under the agreement of the Treasury, the Bank of England purchased £200 billion of assets, mainly UK government bond (gilts) from financial firms such as banks, insurance companies and pension funds (called as ‘asset purchase scheme’) with aim of boosting nominal spending and thereby helping achieve the 2% inflation target (BBC, 2014a) QE operation had several effects in UK such as: (1) when the bank bought assets, this increased their prices and depressed gilt yields by around 100 basis points (Joyce et al, 2011, p.211); (2) Owing to the return of gilts falls, it encouraged the sellers of assets to invest higher-yielding assets like company shares and bonds Along with the bank of England also bought smaller corporate bonds, it helped businesses reduce the cost of borrowing, in turn led to increase spending in the economy According to Joyce et al (2011), net equity and corporate issuance by UK private non-financial corporations were particularly strong in 2009, reversing the negative net issuance observed over 2003–08; (3) Kapetanios et al (2012, p.2) estimated that QE is likely to have raised real GDP by as much as 1.5% to 2.0% and boosted annual CPI inflation by between 0.75% to 1.5 percentage points, this would be equivalent to a 150 to 300 basispoint cut in bank rate However, QE affected adversely savers especially pensioner’ income, for instance the annuity rates2 had fallen by 25% (Altmann, 2012) 1.2 Discuss why there is a need to regulate financial markets According to Mishkin and Eakins (2012, p.30), the government regulates financial markets for two main reasons: to increase the information available to investors (efficiency), to ensure the soundness of the financial system (stability) Indeed, after the failure of financial markets over the years, it is concluded that there are two features of financial system that motivate for the entry of regulation: information asymmetry and systemic risk As mentioned above, asymmetric information results in adverse selection and moral hazard problem Due to nature of financial markets, all financial products and services are Rates of return on savings made for retirement Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 very complicated and difficult to compare In unregulated market, the sellers have enough information about the quality of securities while investors are not fully informed; risky firms therefore have incentives to market poor quality securities Since investors cannot evaluate the quality of securities in advance of purchase, good firms cannot sell high quality securities at high prices although investors are always willing to pay high prices for it The presence of the lemons problem or adverse selection causes securities markets no longer effective channels to raise funds towards good firms as well as keep investors out of financial markets (Mishkin and Eakins, 2012, p.141) Additionally, after mobilizing funds from investors, borrowers may use it in a risky way or commit fraud as case of Madoff in part 1.1.2 above Such thing makes investors suffer losses when the venture fails It lessens confidence of public in financial markets as a result In order to gain public confidence and make financial markets become more efficiency, it is extremely necessary for government to impose some regulations to protect participants of financial markets from fraud and manipulation For example, in US, The SEC was created by the Securities Exchange Act, 1934, which was passed in the aftermath of the Wall Street Crash in 1929 and the following great depression of 1931-3 The SEC requires companies issuing securities to disclose certain information about sales, assets, and earnings to the public and risk involved in investing Besides, people who sell and trade securities - brokers, dealers and exchanges must treat investors fairly and honestly, putting investors’ interests first (Howells, 2010, p.209) In intermediation financial markets like banks, the need for keeping customer confidence is important more than ever Banks operates mainly based on deposits from individuals and institutions to make loan If depositors doubts about the health of bank holding their money, they may rush to withdraw cash from the bank A “bank run” occurs leading to risk of illiquid and collapse of the bank The collapse of one bank causes a loss of confidence in banking in general, creates bad debts for other banks and widespread collapse (financial panics) (Howells and Bain, 2007, p.362) This is called “systemic risk” or “risk of contagion” Therefore, to defend the economy against financial panics, government also need to provide proper financial regulations like restriction to entry and limits on competition to reduce competitive level in banking system; capital requirement, reserve requirement and deposit insurance and to protect and keep customer confidence Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Question 2.1 Distinguish between the spot and the forward foreign exchange rates Spot rates are current market price (or rate of return) - the price available for deals to be done now The spot exchange rate is quoted as a spread - the difference in price at which market makers are prepared to buy (“bid”) and sell (“ask”) (Howells, 2010, p.127) A UK Company, for example, must pay 50 million US dollars to a US Company today, 20 November 2014 11/20/2014 at 8:00 AM Spot (GBP/USD) Bid Ask 1.5642 1.5645 Table 1: Spot rate (ukforex, 2014) The ‘bid’ price is the price at which the currency dealer buys GBP in return of USD The ‘ask’ price is the price at which the currency dealer sells GBP in return of USD The UK Company has GBP and wants to buy 50 million USD to pay debts, so it must pay the ‘bid’ price Thus, UK Company has to pay = £31.965 million Forward rates are prices now for currencies to be delivered at some specified future time The forward rate may be the same as the spot rate, but usually it is higher (at a premium to) or lower (at a discount to) than the spot rate (Howells, 2010, p.128) For example, if the current GBP/USD spot is 1.5642/45 and the three-month forward rate is 1.5639/41, it means USD is trading at a discount to GBP in European terms, then we could say that the market expect GBP to appreciate against USD It takes fewer GBP to buy USD forward as a result There are some differences between spot and forward foreign exchange rate listed below: Spot rate Maturity date Objective Value Immediately (+2 days settlement Forward rate At a specified date in the future basis) Just make settlement Make both settlement and hedging - Have explicit value - Do not have explicit value - Outright exchange - No money actually change hands - Interest is not included in the agreed-upon transaction until some agreed upon future date - Can take advantage of favorable exchange rate at a future date Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Do not provide protection against Plan more safety since market unfavorable movements in participants know in advance what Risk exchange rates between pricing a their foreign exchange will cost; prevention contract and the need to buy/sell Hedging strategies are used to reduce the foreign currency exchange rate risk like locking in a specific exchange rate Table 2: The differences between spot and forward rate (Carbaugh, 2008, p.358) To sum up, the biggest difference to distinguish between spot rate and forward rate is hedging By using forward rate, the trader can be protected from currency fluctuations depend upon the terms of the contract 2.2 How are these rates related and determined in the foreign exchange markets In order to clarify how spot rate and forward rate related and determined in the foreign exchange markets, it is necessary to understand the different theories of exchange rate determination: Law of one price (LOP), Purchasing Power Parity (PPP), Fisher Effect and Interest Rate Parity (IRP) 2.2.1 Purchasing Power Parity (PPP) PPP is the idea that the exchange rate adjusts to keep purchasing power constant among currencies or make good changes in inflation rates (Machiraju, 2002, p.76) There are two versions of PPP: Absolute PPP and Relative PPP Absolute PPP is based on the “law of one price”, where in the absence of transactions costs, competitive arbitrage and official trade barriers, identical goods will have the same price in different markets The LOP has formula: Pi = S × Pi* (1) Where: Pi and Pi* are the domestic and foreign currency prices of commodity i (a good or service) respectively and S is spot rate (Lafrance and Schembri, 2002, p.29) As for PPP, P represents the total price of the basket of goods and services, where LOP is applied to the aggregate economy: P = P* × S or S= (2)  Spot exchange rates in equilibrium are a reflection of differences in price levels in different countries (Howells, 2010, p.147) Relative PPP states that changes in exchange rate between two countries are explained by differences in their inflation rates (Howells, 2010, p.147) 10 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 As can be seen from charts above, the direction of changes in the return of three companies is not repetitive In other words, the stock prices of three companies change randomly and independent over time Three companies’ prices follow random walk model so traders cannot use the past prices to predict future price movements It can be concluded that LSE is weak form efficient market b Test for semi-strong form efficient In order to test for semi-strong form efficient, the researcher uses event study According to analysis in part 3.2.1, if stock prices immediately reflected to information from the announcements, the market is semi-strong efficient Tesco PLC (LSE: TSCO) 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% -10.00% -12.00% -14.00% 1/Sep 2/Sep 3/Sep 4/Sep 5/Sep 8/Sep 9/Sep 10/Sep 11/Sep 12/Sep 15/Sep 16/Sep 17/Sep 18/Sep 19/Sep 22/Sep 23/Sep 24/Sep 25/Sep 26/Sep 29/Sep 30/Sep  FTSE Index TSCO Chart 4: Rate of return of TSCO compared with FTSE 100 Index (1 Sep 2014 - 30 Sep 2014) (Yahoo Finance, 2014b) On 22 September 2014, Tesco announced that the company may have overstated its halfyear profit by 260 million pounds (US$407 million) After its announcements, the BBC has learned one of eight Tesco executives suspended by the company over the £260 million profit misstatement has left the company (BBC, 2014b) The news must be a great shock to investors of TSCO as it is easy to recognize that on the announcement day (22 September 2014) stock price of Tesco fell dramatically compared with the previous price (approximately 11.59%) It continues to plunge by 4.19% on the following day of announcement This shows that stock prices of Tesco reflect immediately the new information 18 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1  Petrofac Ltd (LSE: PFC) 5.00% -5.00% -10.00% 3/Nov 4/Nov 5/Nov 6/Nov 7/Nov 10/Nov 11/Nov 12/Nov 13/Nov 14/Nov 17/Nov 18/Nov 19/Nov 20/Nov 21/Nov 24/Nov 25/Nov 26/Nov 27/Nov 28/Nov 0.00% -15.00% -20.00% -25.00% -30.00% FTSE Index PFC Chart 5: Rate of return of PFC compared with FTSE 100 Index (3 Nov 2014 - 28 Nov 2014) (Yahoo Finance, 2014c) On 24 November 2014, Petrofac reported that profit for 2015 will fall 25% as slowing demand in China and abundant US output cuts oil price (The Guardian, 2014a) Daniel Sugarman, market strategist at ETX Capital, said: “The firm has painted a grim picture for 2015, warning of an expected profits decline of around 25%” (BBC, 2014c) According to semi-strong form efficient, the stock prices of company will decrease immediately owing to the bad news Indeed, the news has hit Petrofac’s share hard At close Petrofac shares were down 26.45% as can be seen in the chart above  Royal Bank of Scotland Group PLC (LSE: RBS) 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% -2.00% -4.00% 1/Jul 2/Jul 3/Jul 4/Jul 7/Jul 8/Jul 9/Jul 10/Jul 11/Jul 14/Jul 15/Jul 16/Jul 17/Jul 18/Jul 21/Jul 22/Jul 23/Jul 24/Jul 25/Jul 28/Jul 29/Jul 30/Jul 31/Jul 0.00% -6.00% FTSE 100 RBS Chart 6: Rate of return of RBS compared with FTSE 100 Index (1 Jul 2014 - 30 Jul 2014) (Yahoo Finance, 2014d) On 25 July 2014, Royal Bank of Scotland has released its first-half results early and revealed that pre-tax profits will almost double to £2.6 billion due to a strong 19 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 performance by its ‘bad bank’ division (Tovey, 2014) This news would be a good and unexpected for investors of RBS After this news, the stock price surge dramatically estimated about 10.77% compared with the previous price It means that the news was incorporated in company’s share prices From the result of three companies, it can be said that LSE is semi-strong form efficient market In conclusion, from tests above and some studies about efficiency of LSE market, the researcher find out that market is assessed to be efficient or inefficient, in part depend on periods, stocks and methods used 3.3 Explain recent upward surges in the FTSE 100 share price index The FTSE 100 is a market-capitalization weighted index of UK-listed blue chip companies The index is part of the FTSE UK Series and is designed to measure the performance of the 100 largest companies traded on the London Stock Exchange that pass screening for size and liquidity (FTSE, 2014) The index began on January 3, 1984 with a base value of 1000 The constituents of FTSE 100 index all traded on the London Stock Exchange’s SETS trading system and are determined quarterly; the largest companies in FTSE 250 index are promoted to the FTSE 100 index if their market capitalization would place them in the top 90 forms of the FTSE 100 index The free-float market capitalization method is used for its computation (Kevin, 2010, p.116) 7000 6800 6600 6400 6200 6000 5800 2/Jun/14 2/Jul/14 2/Aug/14 2/Sep/14 2/Oct/14 2/Nov/14 Chart 7: Share prices of FTSE 100 Index in 2014 (Yahoo Finance, 2014a) As can be seen in the chart above, FTSE 100 Index has an upward trend in the last months of the year 2014, specifically from the end of October to the end of November Such upward trend can be explained by macroeconomic factors as follows: On 31 October 2014, the FTSE has extended early gains to trade up 72.1 points at 6,535.7 after the Bank of Japan announced new stimulus measures (increasing its asset buying 20 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 programme to 80 trillion yen ($726bn; £454bn) a year, up from the previous rate of 60-70 trillion yen) to boost the country’s economic recovery And the FTSE 100 index closed 1% stronger, up 82.9 points at 6,546.5 (Thisismoney, 2014) On November 2014, Europe’s leading stock markets have rallied as traders welcomed the Republican victory in the US midterm elections Accordingly, London’s benchmark FTSE 100 index rose 1.32 percent to end at 6,539.14 points (The Australian Business Review, 2014) Besides, according to The Guardian (2014b), FTSE 100 hits nine weak high as central bank - the People’s Bank of China reduced its one year lending rate by 40 basis points and its deposit rate by 25 basis points and futher QE hints from the European Central Bank Recording its fifth week of rises, the FTSE 100 finished 71.86 points higher at 6,750.76 on 21 November 2014 Question 4.1 Explain the operation and activities and the need for money market 4.1.1 Explain the operation and activities of money market According to Mishkin and Eakins (2012, p.20), money market is a financial market in which only short-term debt instruments (generally those with original maturity of less than one year) are traded  Operations Money market provides a place to invest (warehouse) surplus funds and to borrow large sums over a short period of time - most under 120 days, at slightly higher interest rates compared to banks, but without losing liquidity and fear of default The only condition limiting the number of key participants in this market to only a few is that the transactions have to be high volume and large denominations (wholesale market) upwards of $100 million in the UK (Mishkin and Eakins, 2012, p.255) Trading method: Money market transactions are usually arranged over the phone and completed electronically instead of taking place in a particular location (Mishkin and Eakins, 2012, p.255) Instruments: Two groups of instruments are issued and traded in money market, namely discount instruments which have their return expressed as a rate of discount (e.g treasury bills, commercial bills…) and yield instruments which have their return expressed as a conventional rate of interest (e.g bank deposits, CDs - certificates of deposit, REPO - repurchase agreements…) (Howells, 2010, p.24) Key participants: are financial institutions such as governments, central banks, 21 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 commercial banks, large businesses, investment companies (brokerage firms), finance companies, insurance companies, pension funds…  Activities Money market operate on primary market and secondary market Primary market refers to the initial issuance of a financial instrument in order to mobilize short term capital When an institution issues and sells a financial instrument, it usually involves an investment bank which has responsibility for finding buyers for the newly issued instrument Secondary market is where purchaser of financial instrument sells it to another investor to seek profit before the maturity date The well-developed secondary market for money market instruments (e.g purchasers of money market instruments sell them quickly in secondary market whenever they need for cash) makes money market become more attractive (Ozyasar, 2014) 4.1.2 Why is there a need for such a market In an unregulated world, money markets are not needed The banking industry should handle the needs for short-term loans and accept short-term deposits Banks have an information advantage on the credit-worthiness of participants (Garcia, 2011) Whereas money markets must evaluate each borrower every time a new security is offered Moreover, short-term securities offered for sale are neither as liquid nor as safe as deposits placed in banks (Mishkin and Eakins, 2012, p.255) Nevertheless, in fact money markets are really necessary as it complements the banking industry Although banks are better able to deal with the asymmetric information between savers and borrowers, it is subject to more regulations and governmental costs than money markets Therefore, in situations where asymmetric information is not severe, money markets have a distinct cost advantage over banks in providing short-term funds (Mishkin and Eakins, 2012, p.255) For example, reserve requirements create additional expense for banks that money markets not have Besides, regulations on the level of interest rates offered by banks could lead to a significant growth in money markets When interest rates rose, depositors moved their money from banks to money markets to earn a higher interest rate (Garcia, 2011) 4.2 Explain how a central bank might use the money market to conduct monetary policy in order to target the rate of inflation No central bank can avoid some involvement in the conduct of monetary policy This is 22 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 because the conduct of monetary policy must involve the setting of short-term interest rates, and this is done by the central bank through using its role in the money markets (Howells and Bain, 2007, p.53) In the situation when the amount of money spent grows more quickly than the volume of output produced, inflation is the result In this case, changes in interest rates are used to control inflation (Bank of England, 2014) The central bank sets interest rate at which it lends to financial institutions These interest rate immediately impact on the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers Lowering or raising interest rate affects behaviours of individuals and firms in the economy A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending and ultimately to increase the rate of inflation In contrast, a rise in interest rates will increase demand for saving and reduce demand for making loans and borrowing leading to fall in consumers’ spending and ultimately to lower the rate of inflation However, there are time lags before changes in interest rates affect spending and saving decisions, and longer still before they affect consumer prices For this reason, central banks often operated with some intermediate targets such as inflation forecasts (Bank of England, 2014) The central bank forecasts the future path on inflation and compares it with the target inflation rate (the rate the government believes is appropriate for the economy) The discrepancy between the forecast and the target determines how much monetary policy has to be adjusted to achieve ultimate target (Jahan, 2014) For example, in September 1994 the Bank of England reduced the inflationary pressures by raising the official bank rate from 5.25% at the start of September 1994 to 6.75% for nearly all of 1995 It raised the London Interbank Offered Rate (LIBOR) via interbank transactions After that, commercial banks increased the interest rate offered for their own savers and borrowers With high interest rate, people tended to save more, reduced demand for making loans and borrowing which led to fall in spending and ultimately inflation rate was beginning to fall by the end of 1995 (Anderton, 2003, p.617) 23 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 CONCLUSION Based on collecting information from the variety of sources such as books, journals and reliable websites as well as analysis of the writer, the writer hopes that this research can be a helpful resource to help learners understand some aspect of “Financial Markets’ module 24 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 REFERENCES Altmann (2012) Annuities theft Available at: http://www.rosaltmann.com/oldies_annuities_feb_2012.htm (Accessed: 18 November 2014) Amir, E (2009) Q&A on the Madoff Case Available at: http://online.wsj.com/articles/SB123005811322430633 (Accessed: 17 November 2014) Anderton, A.G (2003) Economics 3rd edn Ormskirk: Causeway Press Banerjee, B (2008) Fundamentals of Financial Management New Delhi: PHI Learning Private Limited Bank of England (2014) How Monetary Policy Works Available at: http://bankofengland.co.uk/monetarypolicy/Pages/how.aspx (Accessed: 01 December 2014) Bank of England UK (2010) Quantitative Easing - How It Works Available at: https://www.youtube.com/watch?v=J9wRq6C2fgo&list=PLslyOrpjJ0z2duArbcMKan_xjl 4lt07WW (Accessed: 18 November 2014) BBC (2014a) Economy tracker: Interest rates Available at: http://www.bbc.com/news/business-11013715 (Accessed: 18 November 2014) BBC (2014b) Tesco executive under suspension leaves company Available at: http://www.bbc.com/news/business-30238607 (Accessed: 03 December 2014) BBC (2014c) Petrofac shares sink on profit warning Available at: http://www.bbc.com/news/business-30174658 (Accessed: 03 December 2014) 10 Bebczuk, R.N (2003) An introduction to asymmetric information problems in financial markets United Kingdom: Cambrige University Press 11 Boyko, S (2009) We're all screwed! Cender Falls, Iowa: W&A pub 12 Brigham, E and Daves, P (2013) Intermediate Financial Management 11th edn USA: South-Western Cengage Learning, pp 189-191 13 Butler, R and Park, Y (2005) Safety practices, firm culture, and workplace injuries Kalamazoo, MI: W.E Upjohn Institute for Employment Research 14 Carbaugh, R (2008) International Economics 13th edn Cambridge, Mass: Winthrop Publishers 15 CFA (2013) Chapter 2: Financial Markets Available at: https://secure.cfauk.org/assets/1217/Chapter_2 _April_2013_v10_1_update.pdf (Accessed: 28 November 2014) 16 CNN (2014) Bernard Madoff Fast Facts Available at: http://edition.cnn.com/2013/03/11/us/bernard-madoff-fast-facts/ (Accessed: 17 November 2014) 17 Ellul, A., Shin, H S and Tonks, I (2005) 'Opening and Closing the Market: Evidence from the London Stock Exchange', Journal of Financial and Quantitative Analysis, Cambridge University Press, 40 (04), pp.1-35 18 Fama, E.F (1970) 'Efficient capital markets: A review of theory and empirical work', The Journal of Finance, 25(2), pp.383-417 25 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 19 Freshfields (2014) Your IPO: Listing requirements Available at: http://www.freshfields.com/uploadedFiles/SiteWide/News_Room/Insight/IPO/35368%20 IPO%20listing%20requirementsSpread.PDF (Accessed: 25 November 2014) 20 Friederich, S., Gregory, A., Matatko, J and Tonks, I (2000) Stock Price Patterns Around the Trades of Corporate Insiders on the London Stock Exchange Discussion Paper 332, pp.1-23 21 FTSE (2014) FTSE 100 Index Available at: http://www.ftse.com/Analytics/FactSheets/temp/12a41158-7da4-4cd2-af9af497a6d56c95.pdf (Accessed: 03 December 2014) 22 Garcia, E (2011) Financial Markets Money Markets Available at: http://didattica.unibocconi.it/mypage/dwload.php?nomefile=SLIDES_MONEYMARKET S20111004114806.PDF (Accessed: 25 December 2014) 23 Howells, P and Bain, K (2007) Financial markets and institutions 5th edn London: Longman 24 Howells, P (2010) Financial Markets APC313 United Kingdom: University of Sunderland 25 Investopedia, 2014 Interest Rate Parity Available at: http://www.investopedia.com/terms/i/interestrateparity.asp (Accessed: 22 November 2014) 26 Jahan, S (2014) Inflation Targeting: Holding the Line Available at: http://www.imf.org/external/pubs/ft/fandd/basics/target.htm (Accessed: 25 December 2014) 27 Joyce, M., Tong, M and Woods, R (2011) 'The United Kingdom’s quantitative easing policy: design, operation and impact', Bank of England Quarterly Bulletin, 51(3), pp.200212 28 Kapetanios, G., Mumtaz, H., Stevens, I and Theodoridis, K (2012) 'Assessing the economy-wide effects of Quantiative Easing', Banking of England Working Papern No.443, 122 (154), pp.1-44 29 Kevin, S (2010) Commodity and financial derivatives Delhi: PHI Learning Private Limited 30 Lafrance, R and Schembri, L (2002) Purchasing-Power Parity: Definition, Measurement, and Interpretation Bank of Canada Review (Autumn), pp.27-33 31 LSEG (2014) Annual Report 2014 Available at: http://www.lseg.com/sites/default/files/content/documents/LSEG%20Annual%20Report %20March%202014.pdf (Accessed: 26 November 2014) 32 Machiraju, H.R (2002) International Financial Markets And India 7th edn India: NewAge International 33 Madura, J (2013) International financial management 12th edn Canada: Cengage Learning 34 Mishkin, F S and Eakins, S, G (2012) Financial Markets & Institutions 7th edn The United States of America: Pearson Education International 26 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 35 Ozyasar, H (2014) The Role of Primary and Secondary Money Markets Available at: http://budgeting.thenest.com/role-primary-secondary-money-markets-33111.html (Accessed: 29 November 2014) 36 Petrofac (2014) About us Available at: http://www.petrofac.com/about.aspx (Accessed: 02 December 2014) 37 Plumer, B (2012) QE3: What is quantitative easing? And will it help the economy? Available at: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/13/qe3-whatis-quantitative-easing-and-will-it-help-the-economy/ (Accessed: 18 November 2014) 38 Praetz, P.D (1973) 'Random walks and investment theory', Journal of the Institute of Actuaries Students' Society, 20(3), pp.202-15 39 RBS (2014) About us Available at: http://www.rbs.com/about.html (Accessed: 02 December 2014) 40 Sanusi, M.S (2012) Analysing volatility behaviour and market efficiency of UK: Oil & Gas sector United Kingdom: The Robert Gordon University 41 Shareprices (2014) Shareprices Available at: http://shareprices.com/lse/tsco (Accessed: 02 December 2014) 42 The Australian Business Review (2014) European stocks rally at close Available at: http://www.theaustralian.com.au/business/latest/european-stocks-rally-at-close/storye6frg90f-1227114121687 (Accessed: 24 December 2014) 43 The Guardian (2014a) Petrofac issues profit warning Available at: http://www.theguardian.com/business/2014/nov/24/petrofac-issues-profit-warning (Accessed: 03 December 2014) 44 The Guardian (2014b) FTSE hits nine week high as China cuts rates and ECB hints at further action Available at: http://www.theguardian.com/business/marketforceslive/2014/nov/21/ftse-100-hits-nineweek-high-as-china-cuts-rates-and-ecb-hints-at-further-action (Accessed: 24 December 2014) 45 Thisismoney (2014) FTSE CLOSE: Bank of Japan sparks global market rally by pumping out extra emergency cash to support economy Available at: http://www.thisismoney.co.uk/money/markets/article-2815491/FTSE-LIVE-Bank-Japanboosts-markets-printing-extra-emergency-cash.html (Accessed: 24 December 2014) 46 Tovey, A (2014) RBS profits near double to £2.65bn in first half Available at: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10990101/RBSprofits-near-double-to-2.65bn-in-first-half.html (Accessed: 03 December 2014) 47 Ukforex (2014) Foreign Exchange Services Available at: http://www.ukforex.co.uk/ (Accessed: 20 November 2014) 48 White, S (2011) Businesses Have Laws Too Bloomington: IUniverse Inc 49 World Stock Exchanges (2012) Top 10 Stock Exchanges in the world Available at: http://www.world-stock-exchanges.net/top10.html (Accessed: 22 November 2014) 50 Yahoo Finance (2014a) FTSE 100 Available at: https://uk.finance.yahoo.com/q/hp?s=%5EFTSE (Accessed: 02 December 2014) 27 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 51 Yahoo Finance (2014b) Tesco PLC (TSCO.L) Available at: https://uk.finance.yahoo.com/q/hp?s=TSCO.L (Accessed: 02 December 2014) 52 Yahoo Finance (2014c) Petrofac Ltd (PFC.L) Available at: https://uk.finance.yahoo.com/q/hp?s=PFC.L (Accessed: 02 December 2014) 53 Yahoo Finance (2014d) Royal Bank of Scotland Group PLC (RBS.L) Available at: https://uk.finance.yahoo.com/q/hp?s=RBS.L (Accessed: 02 December 2014) 28 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 29 APPENDICES Date 2-Jun 3-Jun 4-Jun 5-Jun 6-Jun 9-Jun 10-Jun 11-Jun 12-Jun 13-Jun 16-Jun 17-Jun 18-Jun 19-Jun 20-Jun 23-Jun 24-Jun 25-Jun 26-Jun 27-Jun 30-Jun 1-Jul 2-Jul 3-Jul 4-Jul 7-Jul Closed prices 6,864.10 6,836.30 6,818.60 6,813.50 6,858.20 6,875.00 6,873.60 6,838.90 6,843.10 6,777.90 6,754.60 6,766.80 6,778.60 6,808.10 6,825.20 6,800.60 6,787.10 6,733.60 6,735.10 6,757.80 6,743.90 6,802.90 6,816.40 6,865.20 6,866.10 6,823.50 Return Date -0.41% -0.26% -0.07% 0.66% 0.24% -0.02% -0.50% 0.06% -0.95% -0.34% 0.18% 0.17% 0.44% 0.25% -0.36% -0.20% -0.79% 0.02% 0.34% -0.21% 0.87% 0.20% 0.72% 0.01% -0.62% 8-Jul 9-Jul 10-Jul 11-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 11-Aug 12-Aug Closed prices 6,738.50 6,718.00 6,672.40 6,690.20 6,746.10 6,710.50 6,784.70 6,738.30 6,749.50 6,728.40 6,795.30 6,798.20 6,821.50 6,791.60 6,788.10 6,807.80 6,773.40 6,730.10 6,679.20 6,677.50 6,682.50 6,636.20 6,597.40 6,567.40 6,632.80 6,632.40 Return Date -1.25% -0.30% -0.68% 0.27% 0.84% -0.53% 1.11% -0.68% 0.17% -0.31% 0.99% 0.04% 0.34% -0.44% -0.05% 0.29% -0.51% -0.64% -0.76% -0.03% 0.07% -0.69% -0.58% -0.45% 1.00% -0.01% 13-Aug 14-Aug 15-Aug 18-Aug 19-Aug 20-Aug 21-Aug 22-Aug 26-Aug 27-Aug 28-Aug 29-Aug 1-Sep 2-Sep 3-Sep 4-Sep 5-Sep 8-Sep 9-Sep 10-Sep 11-Sep 12-Sep 15-Sep 16-Sep 17-Sep 18-Sep FTSE 100 Closed prices 6,656.70 6,685.30 6,689.10 6,741.30 6,779.30 6,755.50 6,777.70 6,775.30 6,822.80 6,830.70 6,805.80 6,819.80 6,825.30 6,829.20 6,873.60 6,878.00 6,855.10 6,834.80 6,829.00 6,830.10 6,799.60 6,807.00 6,804.20 6,792.20 6,780.90 6,819.30 Return Date 0.37% 0.43% 0.06% 0.78% 0.56% -0.35% 0.33% -0.04% 0.70% 0.12% -0.36% 0.21% 0.08% 0.06% 0.65% 0.06% -0.33% -0.30% -0.08% 0.02% -0.45% 0.11% -0.04% -0.18% -0.17% 0.57% 19-Sep 22-Sep 23-Sep 24-Sep 25-Sep 26-Sep 29-Sep 30-Sep 1-Oct 2-Oct 3-Oct 6-Oct 7-Oct 8-Oct 9-Oct 10-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct Closed prices 6,837.90 6,773.60 6,676.10 6,706.30 6,639.70 6,649.40 6,646.60 6,622.70 6,557.50 6,446.40 6,527.90 6,563.70 6,495.60 6,482.20 6,431.90 6,340.00 6,366.20 6,392.70 6,211.60 6,195.90 6,310.30 6,267.10 6,372.30 6,399.70 6,419.20 6,388.70 Return Date 0.27% -0.94% -1.44% 0.45% -0.99% 0.15% -0.04% -0.36% -0.98% -1.69% 1.26% 0.55% -1.04% -0.21% -0.78% -1.43% 0.41% 0.42% -2.83% -0.25% 1.85% -0.68% 1.68% 0.43% 0.30% -0.48% 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 17-Nov 18-Nov 19-Nov 20-Nov 21-Nov 24-Nov 25-Nov 26-Nov 27-Nov 28-Nov Table 1: The daily prices and rate of return of FTSE100 (2/06/2014 - 28/11/2014) (Yahoo Finance, 2014a) Closed prices 6,363.50 6,402.20 6,453.90 6,463.60 6,546.50 6,488.00 6,454.00 6,539.10 6,551.20 6,567.20 6,611.30 6,627.40 6,611.00 6,635.50 6,654.40 6,672.00 6,709.10 6,696.60 6,678.90 6,750.80 6,729.80 6,731.10 6,729.20 6,723.40 6,722.60 Return -0.39% 0.61% 0.81% 0.15% 1.28% -0.89% -0.52% 1.32% 0.19% 0.24% 0.67% 0.24% -0.25% 0.37% 0.28% 0.26% 0.56% -0.19% -0.26% 1.08% -0.31% 0.02% -0.03% -0.09% -0.01% Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Date 2-Jun 3-Jun 4-Jun 5-Jun 6-Jun 9-Jun 10-Jun 11-Jun 12-Jun 13-Jun 16-Jun 17-Jun 18-Jun 19-Jun 20-Jun 23-Jun 24-Jun 25-Jun 26-Jun 27-Jun 30-Jun 1-Jul 2-Jul 3-Jul 4-Jul 7-Jul Closed prices 300.55 297.50 293.50 291.65 290.55 294.10 295.40 295.00 292.10 292.00 288.85 290.05 292.10 290.90 290.35 292.00 289.35 285.25 285.20 283.75 284.20 284.15 284.95 290.80 290.85 289.20 Return Date -1.01% -1.34% -0.63% -0.38% 1.22% 0.44% -0.14% -0.98% -0.03% -1.08% 0.42% 0.71% -0.41% -0.19% 0.57% -0.91% -1.42% -0.02% -0.51% 0.16% -0.02% 0.28% 2.05% 0.02% -0.57% 8-Jul 9-Jul 10-Jul 11-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 11-Aug 12-Aug Closed prices 283.05 279.50 280.70 278.10 284.45 281.95 287.15 284.75 285.00 288.65 277.35 276.00 274.80 270.35 268.50 269.15 265.90 258.00 253.60 250.70 251.10 245.55 243.80 247.00 246.30 243.35 Return Date -2.13% -1.25% 0.43% -0.93% 2.28% -0.88% 1.84% -0.84% 0.09% 1.28% -3.91% -0.49% -0.43% -1.62% -0.68% 0.24% -1.21% -2.97% -1.71% -1.14% 0.16% -2.21% -0.71% 1.31% -0.28% -1.20% 13-Aug 14-Aug 15-Aug 18-Aug 19-Aug 20-Aug 21-Aug 22-Aug 26-Aug 27-Aug 28-Aug 29-Aug 1-Sep 2-Sep 3-Sep 4-Sep 5-Sep 8-Sep 9-Sep 10-Sep 11-Sep 12-Sep 15-Sep 16-Sep 17-Sep 18-Sep LSE: TSCO Closed Return prices 244.15 0.33% 245.20 0.43% 248.00 1.14% 247.95 -0.02% 248.50 0.22% 246.90 -0.64% 245.50 -0.57% 248.00 1.02% 252.10 1.65% 249.30 -1.11% 246.30 -1.20% 229.95 -6.64% 225.55 -1.91% 230.90 2.37% 232.60 0.74% 229.45 -1.35% 228.50 -0.41% 232.90 1.93% 233.15 0.11% 231.90 -0.54% 230.20 -0.73% 228.65 -0.67% 228.50 -0.07% 225.15 -1.47% 224.75 -0.18% 227.35 1.16% Date 19-Sep 22-Sep 23-Sep 24-Sep 25-Sep 26-Sep 29-Sep 30-Sep 1-Oct 2-Oct 3-Oct 6-Oct 7-Oct 8-Oct 9-Oct 10-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct Closed prices 229.60 203.00 194.50 194.90 192.50 191.55 187.80 186.20 180.20 178.20 172.15 176.75 182.60 185.10 186.70 185.25 180.60 179.80 174.90 172.00 174.55 179.30 185.90 183.00 171.00 168.75 Return Date 0.99% -11.59% -4.19% 0.21% -1.23% -0.49% -1.96% -0.85% -3.22% -1.11% -3.40% 2.67% 3.31% 1.37% 0.86% -0.78% -2.51% -0.44% -2.73% -1.66% 1.48% 2.72% 3.68% -1.56% -6.56% -1.32% 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 17-Nov 18-Nov 19-Nov 20-Nov 21-Nov 24-Nov 25-Nov 26-Nov 27-Nov 28-Nov Table 2: The daily prices and rate of return of TSCO (2/06/2014 - 28/11/2014) (Yahoo Finance, 2014b) Closed prices 169.10 169.80 173.35 173.30 173.60 173.75 171.85 175.75 181.50 184.45 192.90 194.95 191.45 191.15 195.00 192.70 192.70 194.10 192.90 194.40 193.40 188.15 187.20 185.65 186.45 30 Return 0.21% 0.41% 2.09% -0.03% 0.17% 0.09% -1.09% 2.27% 3.27% 1.63% 4.58% 1.06% -1.80% -0.16% 2.01% -1.18% 0.00% 0.73% -0.62% 0.78% -0.51% -2.71% -0.50% -0.83% 0.43% Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Date 2-Jun 3-Jun 4-Jun 5-Jun 6-Jun 9-Jun 10-Jun 11-Jun 12-Jun 13-Jun 16-Jun 17-Jun 18-Jun 19-Jun 20-Jun 23-Jun 24-Jun 25-Jun 26-Jun 27-Jun 30-Jun 1-Jul 2-Jul 3-Jul 4-Jul 7-Jul Closed prices 1,262.00 1,246.00 1,251.00 1,232.00 1,255.00 1,252.00 1,246.00 1,240.00 1,248.00 1,257.00 1,268.00 1,250.00 1,236.00 1,240.00 1,244.00 1,245.00 1,223.00 1,199.00 1,223.00 1,208.00 1,203.00 1,206.00 1,203.00 1,219.00 1,225.00 1,231.00 Return Date -1.27% 0.40% -1.52% 1.87% -0.24% -0.48% -0.48% 0.65% 0.72% 0.88% -1.42% -1.12% 0.32% 0.32% 0.08% -1.77% -1.96% 2.00% -1.23% -0.41% 0.25% -0.25% 1.33% 0.49% 0.49% 8-Jul 9-Jul 10-Jul 11-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 11-Aug 12-Aug Closed prices 1,203.00 1,180.00 1,166.00 1,161.00 1,198.00 1,188.00 1,200.00 1,196.00 1,192.00 1,178.00 1,210.00 1,197.00 1,152.00 1,127.00 1,126.00 1,116.00 1,112.00 1,097.00 1,111.00 1,093.00 1,084.00 1,076.00 1,078.00 1,076.00 1,109.00 1,092.00 Return Date -2.27% -1.91% -1.19% -0.43% 3.19% -0.83% 1.01% -0.33% -0.33% -1.17% 2.72% -1.07% -3.76% -2.17% -0.09% -0.89% -0.36% -1.35% 1.28% -1.62% -0.82% -0.74% 0.19% -0.19% 3.07% -1.53% 13-Aug 14-Aug 15-Aug 18-Aug 19-Aug 20-Aug 21-Aug 22-Aug 26-Aug 27-Aug 28-Aug 29-Aug 1-Sep 2-Sep 3-Sep 4-Sep 5-Sep 8-Sep 9-Sep 10-Sep 11-Sep 12-Sep 15-Sep 16-Sep 17-Sep 18-Sep LSE: PFC Closed prices 1,109.00 1,144.00 1,134.00 1,140.00 1,154.00 1,139.00 1,126.00 1,126.00 1,123.00 1,149.00 1,123.00 1,129.00 1,126.00 1,130.00 1,129.00 1,115.00 1,102.00 1,095.00 1,095.00 1,079.00 1,073.00 1,062.00 1,055.00 1,040.00 1,040.00 1,049.00 Return Date 1.56% 3.16% -0.87% 0.53% 1.23% -1.30% -1.14% 0.00% -0.27% 2.32% -2.26% 0.53% -0.27% 0.36% -0.09% -1.24% -1.17% -0.64% 0.00% -1.46% -0.56% -1.03% -0.66% -1.42% 0.00% 0.87% 19-Sep 22-Sep 23-Sep 24-Sep 25-Sep 26-Sep 29-Sep 30-Sep 1-Oct 2-Oct 3-Oct 6-Oct 7-Oct 8-Oct 9-Oct 10-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct Closed prices 1,048.00 1,058.00 1,040.00 1,044.00 1,021.00 1,010.00 1,039.00 1,037.00 1,011.00 995.00 995.50 982.50 962.00 975.00 998.50 974.00 982.50 981.00 965.50 987.50 1,060.00 1,030.00 1,062.00 1,075.00 1,080.00 1,068.00 Return Date -0.10% 0.95% -1.70% 0.38% -2.20% -1.08% 2.87% -0.19% -2.51% -1.58% 0.05% -1.31% -2.09% 1.35% 2.41% -2.45% 0.87% -0.15% -1.58% 2.28% 7.34% -2.83% 3.11% 1.22% 0.47% -1.11% 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 17-Nov 18-Nov 19-Nov 20-Nov 21-Nov 24-Nov 25-Nov 26-Nov 27-Nov 28-Nov Table 3: The daily prices and rate of return of PFC (2/06/2014 - 28/11/2014) (Yahoo Finance, 2014c) Closed prices 1,045.00 1,051.00 1,045.00 1,041.00 1,060.00 1,080.00 1,049.00 1,055.00 1,088.00 1,118.00 1,138.00 1,134.00 1,138.00 1,123.00 1,151.00 1,150.00 1,163.00 1,147.00 1,178.00 1,193.00 877.50 891.00 899.50 843.50 825.00 31 Return -2.15% 0.57% -0.57% -0.38% 1.83% 1.89% -2.87% 0.57% 3.13% 2.76% 1.79% -0.35% 0.35% -1.32% 2.49% -0.09% 1.13% -1.38% 2.70% 1.27% -26.45% 1.54% 0.95% -6.23% -2.19% Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 Date 2-Jun 3-Jun 4-Jun 5-Jun 6-Jun 9-Jun 10-Jun 11-Jun 12-Jun 13-Jun 16-Jun 17-Jun 18-Jun 19-Jun 20-Jun 23-Jun 24-Jun 25-Jun 26-Jun 27-Jun 30-Jun 1-Jul 2-Jul 3-Jul 4-Jul 7-Jul Closed prices 344.90 341.00 337.90 337.20 338.60 343.20 341.60 340.00 340.30 342.20 339.60 341.90 338.10 338.50 337.20 330.00 327.60 323.00 324.70 327.00 328.40 327.00 326.00 332.80 331.50 329.90 Return Date -1.13% -0.91% -0.21% 0.42% 1.36% -0.47% -0.47% 0.09% 0.56% -0.76% 0.68% -1.11% 0.12% -0.38% -2.14% -0.73% -1.40% 0.53% 0.71% 0.43% -0.43% -0.31% 2.09% -0.39% -0.48% 8-Jul 9-Jul 10-Jul 11-Jul 14-Jul 15-Jul 16-Jul 17-Jul 18-Jul 21-Jul 22-Jul 23-Jul 24-Jul 25-Jul 28-Jul 29-Jul 30-Jul 31-Jul 1-Aug 4-Aug 5-Aug 6-Aug 7-Aug 8-Aug 11-Aug 12-Aug Closed prices 320.20 316.20 314.90 314.10 319.50 327.30 330.00 323.70 319.20 319.00 322.30 323.60 328.80 364.20 352.00 354.00 362.90 355.30 350.00 352.50 347.30 346.10 337.40 345.60 339.60 342.00 Return -2.94% -1.25% -0.41% -0.25% 1.72% 2.44% 0.82% -1.91% -1.39% -0.06% 1.03% 0.40% 1.61% 10.77% -3.35% 0.57% 2.51% -2.09% -1.49% 0.71% -1.48% -0.35% -2.51% 2.43% -1.74% 0.71% LSE: RBS Closed prices 13-Aug 348.40 14-Aug 349.20 15-Aug 347.60 18-Aug 351.20 19-Aug 359.40 20-Aug 360.10 21-Aug 361.00 22-Aug 358.30 26-Aug 365.70 27-Aug 366.40 28-Aug 361.70 29-Aug 362.80 1-Sep 360.30 2-Sep 351.50 3-Sep 352.20 4-Sep 354.90 5-Sep 347.00 8-Sep 342.50 9-Sep 344.20 10-Sep 342.20 11-Sep 346.00 12-Sep 349.70 15-Sep 346.70 16-Sep 351.30 17-Sep 354.90 18-Sep 357.20 Date Return Date 1.87% 0.23% -0.46% 1.04% 2.33% 0.19% 0.25% -0.75% 2.07% 0.19% -1.28% 0.30% -0.69% -2.44% 0.20% 0.77% -2.23% -1.30% 0.50% -0.58% 1.11% 1.07% -0.86% 1.33% 1.02% 0.65% 19-Sep 22-Sep 23-Sep 24-Sep 25-Sep 26-Sep 29-Sep 30-Sep 1-Oct 2-Oct 3-Oct 6-Oct 7-Oct 8-Oct 9-Oct 10-Oct 13-Oct 14-Oct 15-Oct 16-Oct 17-Oct 20-Oct 21-Oct 22-Oct 23-Oct 24-Oct Closed prices 366.00 359.60 357.90 362.10 361.40 362.50 361.40 368.20 368.60 358.80 366.50 371.90 369.70 366.20 358.40 357.00 360.50 357.80 342.20 337.70 344.90 351.90 360.00 364.40 367.50 364.20 Table 4: The daily prices and rate of return of RBS (2/06/2014 - 28/11/2014) (Yahoo Finance, 2014d) Return Date 2.46% -1.75% -0.47% 1.17% -0.19% 0.30% -0.30% 1.88% 0.11% -2.66% 2.15% 1.47% -0.59% -0.95% -2.13% -0.39% 0.98% -0.75% -4.36% -1.32% 2.13% 2.03% 2.30% 1.22% 0.85% -0.90% 27-Oct 28-Oct 29-Oct 30-Oct 31-Oct 3-Nov 4-Nov 5-Nov 6-Nov 7-Nov 10-Nov 11-Nov 12-Nov 13-Nov 14-Nov 17-Nov 18-Nov 19-Nov 20-Nov 21-Nov 24-Nov 25-Nov 26-Nov 27-Nov 28-Nov Closed prices 359.20 359.10 359.80 365.30 388.00 380.20 379.50 382.80 380.70 374.90 378.50 377.70 374.10 373.80 376.60 380.00 381.60 383.80 380.60 377.70 378.90 387.10 387.00 390.60 395.30 32 Return -1.37% -0.03% 0.19% 1.53% 6.21% -2.01% -0.18% 0.87% -0.55% -1.52% 0.96% -0.21% -0.95% -0.08% 0.75% 0.90% 0.42% 0.58% -0.83% -0.76% 0.32% 2.16% -0.03% 0.93% 1.20% ... quote-driven market, market makers (financial institutions) input their prices to a central market system (e.g SEAQ) 13 Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1 which market participants... money market, the need for such a market and explains how a central bank might use the money market to conduct monetary policy in order to target the rate of inflation Financial Markets APC313. .. moral hazard problem Due to nature of financial markets, all financial products and services are Rates of return on savings made for retirement Financial Markets APC313 Nguyen Thi Kieu Anh - ID 149078874/1