Corporate Finance CORPORATE

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CORPORATE FINANCE (UKFF 3013)
JUNE 2022 TRIMESTER
TUTORIAL 3 (WEEK STARTING 27 JUNE 2022)
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)
1 | P a g e
QUESTION 1
(a) Identify three distinct ways that savings are ultimately transferred to business
firms in need of cash.
(b) Describe the key role of a financial market in the flow of funds, and how an
economy might lose out when its financial markets are not developed.
SUGGESTED ANSWER:
(a) First, there may be a direct transfer of savings from the investor to the borrower.
Second, there may be an indirect transfer that used the services provided by an
investment banker. Third, there may be an indirect transfer that uses the
services of a financial intermediary. Private pension funds and life insurance
companies are prominent examples of the latter case.
(b) Financial markets are institutions and procedures that facilitate transactions of
all types of financial claims. It also facilitates the flows of funds among
investors, firms and governments. They perform the function of allocating
savings in the economy to the ultimate users to carry out profitable investments.
Without these markets, the total wealth of an economy would be less due to the
lower rate of capital formation. Without financial markets, individuals and firms
who have good ventures will need to accumulate enough savings by
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CORPORATE FINANCE (UKFF 3013)
JUNE 2022 TRIMESTER
TUTORIAL 3 (WEEK STARTING 27 JUNE 2022)
CAPITAL MARKETS, MARKET EFFICIENCY
AND RATIO ANALYSIS (CHAPTER 2)
themselves over a long period of time in order to invest.
QUESTION 2
What are the implications of the Efficient Market Hypothesis for stock exchange
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