Running Head: BUSINESS MANAGEMENT

Business Management
[Name of the Writer]
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Business Management

Contents
1.1 Define and discuss what the Efficient Markets Hypothesis means........................3
Definitions of Efficient Marketing Hypothesis (EMH)..............................................................3
Three Types of Efficient Marketing Hypothesis (EMH)............................................................3
1. Weak Efficient Marketing Hypothesis................................................................................4
2. Semi-Strong Efficient Marketing Hypothesis.....................................................................4
3. Strong Efficient Marketing Hypothesis..............................................................................5
1.2 In your opinion, did the financial markets act as would be expected under the
Efficient Markets Hypothesis during the Credit Crunch? Use evidence to support
your opinion..........................................................................................................................5
Credit Crush...............................................................................................................................5
Effects of Credit Crush on the Markets......................................................................................6
Efficient Markets Hypothesis and credit crush.......................................................................7
1.3 Choose one regulation put in place after the Credit Crunch. In your opinion, has
this increased the efficiency of financial markets?............................................................8
Macro prudential regulation.......................................................................................................8
Policies of Macro prudential regulation...................................................................................10
Critically evaluate any one of the theories of exchange rate determination for your
allocated currency pair. Your currency pair is available on Moodle.............................11
Exchange Rate determnation Theories.....................................................................................11
FOREX Theory........................................................................................................................12
Currency Pair: US dollar and New Zealand dollar..................................................................13

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1.1 Define and discuss what the Efficient Markets Hypothesis

means.
Definitions of Efficient Marketing Hypothesis (EMH)
Efficient Marketing Hypothesis (EMH) is an investment theory, which states the non-real
businesses beatings situations in the markets because of the market efficiency effects. Market
efficiency powers exist to share the prices effects for incorporating the relevant information.
Efficient Marketing Hypothesis (EMH) is very useful for the investors for the profitable
revenues.
To understand the clear meaning of Efficient Marketing Hypothesis (EMH), the concepts of
the efficient markets are important to understand. The efficient markets are the places, where
the price of the market is an unbiased estimator for the true value of the investment projects.
(Markets, 2014)
The assumptions/ hypothesis about the market information play an important role to describe
the level of market efficiency for the investors. Information of the markets for the public and
investors plays an important role to describe the true situations of the foreign currency rate
for the sake of currency pair analysis (Markets, 2014).
Three Types of Efficient Marketing Hypothesis (EMH)
Efficient markets are the places for many business participants by having same aims and
objectives to get the same information for the competition concerns. The stock market is a
place with several profit finding professional. These businesspersons for the profit achievers
belong to the both private and public sectors by having same interests of revenues. Profit is
the major objective of the all participants in the markets.
Efficient Marketing Hypothesis describes the effective ways for getting revenues through
highly competitive markets. The three forms of the EHM illustrate different situations of the

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markets that the all-profitable predictions about the revenues cannot be easily achieved
(Jones-Irwin, 1979). There are three types of the Efficient Marketing Hypothesis (EMH) to
understand effectively;
1. Weak Efficient Marketing Hypothesis
2. Semi-Strong Efficient Marketing Hypothesis
3. Strong Efficient Marketing Hypothesis
1. Weak Efficient Marketing Hypothesis
Weak Efficient Marketing Hypothesis clearly states that the marketers cannot predict the
future stock prices based on previous stock prices. Weak Efficient Marketing Hypothesis
actually highlights the important of direct technical analysis for the future predictions
regarding stock exchange prices. If the previous year prices are not useful for the future
predictions then there is no need of past prices discussions (Piper, 2014).
Weak EHM can be concluded in these descriptions;
1. The weak form of the EHM is very useful for the marketers and the investors, who
want to increase their profits by adopting different plans and strategies by having
proper information of the price settings.
2. To understand the concepts of the weak EHM, it is easy for the concerned people by
analyzing the historical data of prices and the volumes of the products. Otherwise, the
study of empirical and theoretical is difficult to analyses for everyone (Jones-Irwin,
1979).
2. Semi-Strong Efficient Marketing Hypothesis
Semi-Strong Efficient Marketing Hypothesis neglects the importance of published
information for the future stock exchange predictions. Semi strong EMH needs a fundamental

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analysis for the published information to the stock exchange price patterns. Analysis of the
financial statement is concerns to this type of hypothesis in the price analysis (Piper, 2014).
Semi-Strong EMH is very useful to develop the future earnings based on the proper analysis.
It describes the day-to day changing effects in the earnings. The hypothesis of the semi-strong
EMH states the unexpected revenues, which do not influence the exact expectations of the
investors (Jones-Irwin, 1979).
3. Strong Efficient Marketing Hypothesis
Strong Efficient Marketing Hypothesis favors to trust the present information about the stock
exchange, whether it is published or unpublished. Only legal trends are concerned to this type
of hypothesis (Piper, 2014). Strong form of the EMH is not considered as an efficient
measure for true predictions. Strong EMH is very important because of two major reasons;
Firstly, if the markets were inefficient in past then there is the need of MPT to study keenly
for the possible resolutions. Secondly, the condition of reasonable efficient market is the
efficient form of practical MPT study (Jones-Irwin, 1979).

1.2 In your opinion, did the financial markets act as would be

expected under the Efficient Markets Hypothesis during the
Credit Crunch? Use evidence to support your opinion.
Credit Crush
Credit crush is a situation, in which there is a sudden severe reduction in the provision of the
credit or money for the lenders from the banks. The term credit crush is the second name of
the credit crisis in the financial markets. The description of the credit crush is the lack of
the available currency resources for the consumers as well as for the investors and the
businesspersons.

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Credit crush is also a situation, where the banks and the credit card companies do not produce
liquid money for the loans and the business exchanges at the national and international level.
If the loans are taken or lending, then there high rates of interest rates to impact as an
inflationary gap in the economy. In the situation of credit crush in the markets, only rich
investors and the well-off people can run their business very efficiently for the profitable
revenues through collection of the much more assets.
It is a poor situation for the poor people or the poor investors, as the banks do not give loans
to the poor people because of high interest rates. The rich people and the rich investors get
many benefits through enough credit having. The rich situations for the rich and the poor
circumstances for the poor are the name of credit crush in the financial markets (Crush,
2014).
Effects of Credit Crush on the Markets
Credit crush crisis is considered as a great threat in the field of global financial markets since
1930s. Many investors faced great losses during that period, and many gained profits that
time. Because of credit crush, the markets face these kinds of reactions (Perry, 2014);

Trade of T-bills with the negatively yielding

Severe risk premiums soaring for the corporate bonds

In 2008, international stock exchanges faced the same severe credit crush

S & P 500 market faced the severe credit crush in 2008 inflationary period

In 2008, the global stock markets went down by more than 30% loss

In the situation of credit crush, confidence level of the markets goes down and same
in the situations of the liquidity problems for the business community

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The effects of credit crush are very severe for the financial markets. The monetary policy
faces severe weak reaction in result of credit bubbling situations. These common reasons of
the credit crush include such kinds of problem (Watch, 2010);

Issuing the variety of credit instruments at the level of figurative scale

Increase in the debts for the household products and services

Rise in the risky favored situations depicting by the investors and the marketers

Ups and downs in the currency system in the world

In the credit crush situations, international banks play an important role to fix the inflationary
situations and the currency problems in the national and the international markets.
Efficient Markets Hypothesis and credit crush
The Effcint Market Hypothesis simply describe the avalable prices in the markets, which
can not change easily. These price levels are difficult to manage for the stabilised situations.
When the investors open the secrets of the informative materials, they find different price
rates for the bonds and securities in the process of buying and selling during the bidding.
High priced securities increase the value of price in the pushing manner. The unexpected
prices open the hard situations in the buyng and selling process, which is the main concern of
the efficient market hypothesis. Financial crisis are the major cause of the failure of efficient
market hypothesis (Rudden, 2012).
The hypothesis does not describe clearly the current or expected values of the bonds and the
securitis, which become the cause of loss for the investors. Market trends describe the clear
picture of the hypothesis. Some expert argues that the Effcint Market Hypothesis does not
impact the market efficiency through credit crush. In the start of 21st century, the Effcint
Market Hypothesis theory has proved that it has no impact on the credit crush situations in
the national or international markets.

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Many news reports have proved the Effcint Market Hypothesis as a dead theory in the
ficancial markets. Because the three forms of Effcint Market Hypothesis are not ever true for
the future presctions. Another evidence has proved that the Effcint Market Hypothesis is one
of the credit crush cause, but indirectly it leads to the crisis by different nterventions(Harford,
2011).
1.3 Choose one regulation put in place after the Credit Crunch. In
your opinion, has this increased the efficiency of financial
markets?
The efficiency of the financial markets describes that the markets are ever in the stable
conditions. Based on the information, the market behaviors can know very easily. This
market behavior goes towards the stabilized markets at the equilibrium level. In case of
unestablished markets, there is a rational bubble form to analyses the true information.
Market imperfections are because of the lengthy working hours per day, a lot of differences in
the time zones, restrictions in the regulations, etc.(Alan Greenspan, 2009).
Different rules and regulations play an important role to solve different kinds of problems in
every field of life. The regulations are very useful in the institutional practices at the flexible
prices rates to controlling the instablised situations, Keynesian theory is one of the examples
for the marketing stabilize strategy by adopting different terms and techniques in the markets.
Macro prudential regulation
Macro prudential regulations are very useful to analyses the different types of systemic risks
with the help of broadening support. Macro prudential regulation follows the natural forms of
the analysis for the recognition of the systemic risks in the markets (Alan Greenspan, 2009).
The scope of macro prudential regulation is very broaden in the financial market. The
regulation is specifically designed to identify the market risks and stabilities in terms of costs

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and price issues. Provision of the credit and the decreasing costs are the major concerns of
this type of regulatory system.
Macro prudential regulation is very useful in the credit crush situation. Credit crush is the
severe form of suffering the investors due to the banks behaviors. Not only the lenders, but
the household debtors also face serious losses and more risks for loss in the future. The
combination of the households and the lenders stress make the distress economy overall.
These problems arise due to the aggregate weaknesses of the financial sectors by disrupting
the financial markets very badly (Nier, 2014). The important workings of the Macro
prudential regulations are such as:

Weighing the sectorial risks in different variations

Macro prudential regulation decreases the effects of price deregulations by

introducing new strategies in the form of new loans to cover the previous losses. For
example, a few months ago, Turkey increased the requirements for the new lending
plans for the new households in terms of increase in the loans rate policies.

Providing dynamic facilities

Macro prudential regulatory system provides dynamic facilities in the financial

markets. The dynamic facilities are the forces to impress the bank loan strategies for
covering the loan losses in the good times. The balance sheets of the banks are
prepared in the easy returns conditions forms for the lenders. The example of proving
dynamic facility could be seen in Spain in the year of 2008.

Targeted measures for the foreign currency lending

Macro prudential regulatory system measures the decreasing trends of risks including
the limits of the portfolio for the foreign currency lending trends.

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Policies of Macro prudential regulation

Macro prudential policies are very effective in some sort of terms;

Refining and building the institutional foundations

Designing of the analytical frameworks for the efficient monitoring system for the
risk assessment

Providing guidelines for the appropriate actions for the policies

Establishing the international cooperating systems for the currency stabilizing

The implementations of the rules and regulations are useful to be protected from the great
losses during the business. Due to the presence of regulatory authorities or the regulations, no
investor or the financial power can be a serious cause of losses in the businesses.

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B2 Exchange rates - Indicative limit for part B2 - 1000 words

Critically evaluate any one of the theories of exchange rate

determination for your allocated currency pair. Your currency pair
is available on Moodle.
Exchange Rate determnation Theories
Foreign exchange rate is a kind of market, where different currencies are exchanged at
specific rate. The specic rates for the exchange of the currencies is called foreign exchange.
There are many theories in repecst to the exhange rates, some are presented below
(Anastopoulos, 2014);
1. Supply and Demand Theory
The forces of demand and supply impact the foreign currency in a negative manner. When
there is increase in the foreign currency supply, in result the demand for foreign currency
decreases. There are some market forces to control the foreign currency fluctuation in the
markets.
2. Purchasing Power Parity (PPP)
According to this exchange theory, the use of one unit currency of Euro (which is a
purchasing power) results can same for all goods purchasing all over the world.
3. The approach of Balance of payment
This approach describes the specific factors of demand and supply to influence the domestic
sountrys currency. Balance of payment approach is a useful technique to record all foreign
monetary measures for the transactional causes through central banks.
4. The aproach of Monetary policy
This theory clearly describes the rates of exchange for the adjustments of the currency
demand and supply in the national and international markets.

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5. The theory of Portfolio Balance

This approach is useful to describe the assets of the investors in the form of portfolios to
reduce the risks of losses in the foreign countries investments (Anastopoulos, 2014).
FOREX Theory
Forex (Foreign Exchange Market) is the name of international currency markets to exchange
the currency into different countries by changing the currency rates according to the date and
value of the country. In the FOREX system, different types of dealers are there through
effective communication from the phone calls or the e-mail services. FOREX trade system is
famous all over the world by functioning different tasks relating to the price and currency
concerns (Forex, 2014). In 1602, Amsterdam became the first place for the first FOREX
stock exchange in the world. FOREX theory is concerned to the some technical fields of
work, which are

Indicators / Oscillators e.g. RSI (relative strength index)

Number theory e.g. Fibonacci numbers, Gann numbers

Waves e.g. Elliot wave theory

Gaps e.g. low-high, closing-opening

Trends e.g. moving or following averages

Information on the chart e.g. triangles, Head and Shoulders, Channels, specific
candles

Main partners of the FOREX foreign exchanges are the commercial banks, exchange
markets, investment funds, central banks, firms for conducting foreign trade organizations,
stockbroker companies, private officials or the private owners, etc. (Forex, 2014).
There are many benefits of the FOREX exchange trades;

Strong forex leverages

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Commissions at zero forex rates

Limiting the risk rates for the brokers

Price guarantees for the investors

Twenty four hour marketing timings

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The trade of currency through FOREX is ever done by pairs. Pair currency is a unique term in
the field of foreign exchanges. There are different signs and symbols for the pair currency
processes in the form of ABC / DEF. in real the ABC /DEF are no the exact currency pair but
show the sequence in this form to identify the exact situation. Actually, the ABC and DEF are
used for two counties currency in a pair form.
It is a fact that the FOREX market is the biggest market in the world in the exchange of the
currency based processes. The broker uses the market very efficiently for the great revenues
(Forex, 2014).
Currency Pair: US dollar and New Zealand dollar
The currency pair of the US dollar and New Zealand dollar is written as the NZD / USD.
This currency pair of the New Zealand and the US dollars describes that how many US
dollars are equal to the purchasing of the New Zealand dollars. Trading of the NZD / USD
is a popular term as Kiwi.

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Exchange rate for converting United States Dollar to New Zealand Dollar: 1 USD =
1.26430 NZD
USD
NZD
$ 1 USD
NZ$ 1.26 NZD
$ 5 USD
NZ$ 6.32 NZD
$ 10 USD
NZ$ 12.64 NZD
$ 50 USD
NZ$ 63.22 NZD
$ 100 USD
NZ$ 126.43 NZD
$ 250 USD
NZ$ 316.08 NZD
$ 500 USD
NZ$ 632.15 NZD
$ 1,000 USD
NZ$ 1,264.30 NZD
$ 5,000 USD
NZ$ 6,321.52 NZD
$ 10,000 USD
NZ$ 12,643.03 NZD
$ 50,000 USD
NZ$ 63,215.17 NZD
$ 100,000 USD NZ$ 126,430.34 NZD
$ 500,000 USD NZ$ 632,151.72 NZD
$ 1,000,000 USD NZ$ 1,264,303.43 NZD
Last Updated: 01/12/2014 23:05:53
Currency Pair Indicator:NZD/USD
Buy NZD/Sell USD
Buy New Zealand Dollar/Sell United States Dollar
Convert from United States Dollar to New Zealand Dollar
Source: http://themoneyconverter.com/USD/NZD.aspx
The NZD / USD currency pair describes the composition of both countries dollar. The trend
of trading the dollar with the New Zealand is called the trade of Kiwi.
Trading of the Kiwi is very famous all over the world, because trader purchases the New
Zealand dollar as a beneficial salary and sells it with the cheaper USD currency.
Interesting Facts of the New Zealand dollar

The New Zealand dollar is the official and home currency of the country. The
currency is also the official currency of some other countries, such as Niue, Cook
Island, Tokelau, and in the Pitcairn Island.

The economy of New Zealand is very rich by depending upon the raw materials,
exports, dairy products, and the fishing. The prices of common commodities are

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normal and the GDP growth, interest rates, etc. are at normal prices, which make the
economy very strong.

The economy of New Zealand is moving toward the industrial economy very steadily
in the fields of machinery, food processing, transportation parts, mining, and banking.

Advantages of the NZD/ USD trade

Trading and businesses through NZD/ USD currency pair is very advantageous for the traders
and as well for the investors. There are long-term benefits in the trading of NZD/ USD
currency pair. Some powers can affect the currency pair very efficiently, such as the
intervention of the Reserve Bank of New Zealand and the Federal Reserve Bank of the
United States. The combination of the both Federal banks is known as RBNZ. The
announcements from the RBNZ can affect the trends of rate of interests as well as to
influence the NZD/ USD currency pair (forex, 2014).

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References
Alan Greenspan, 2009. Cognition, Market Sentiment and Financial Instability: Psychology in
a Minsky Framework. [Online]
Available at: http://storre.stir.ac.uk/
Anastopoulos, M., 2014. Theories of Exchange rate determination. In: International
Finance . s.l.:s.n.
Crush, T. C., 2014. The Credit Crunch; Simple Explanations and Innovative Solutions.
[Online]
Available at: http://www.creditcrunch.org/
Forex, 2014. FOREX (Foreign Exchange Market). [Online]
Available at: http://forextheory.com/
Harford, T., 2011. Dont blame the (mostly) efficient markets hypothesis. [Online]
Available at: http://www.ft.com/
iForex, 2014. NZ Dollar/US Dollar. [Online]
Available at: http://www.iforex.com/
Jones-Irwin, D., 1979. Chapter 2: Forms Of The Efficient Market Hypothesis. In: Excerpt
from Robert Hagin, Modern Portfolio Theory. s.l.:s.n.
Markets, E., 2014. MARKET EFFICIENCY - DEFINITION AND TESTS. [Online]
Available at: http://pages.stern.nyu.edu/
Nier, L. I. J. a. E. W., 2014. Macroprudential Policy: Protecting the Whole. [Online]
Available at: http://www.imf.org/
Perry, B., 2014. Credit Crisis: Market Effects. In: s.l.:http://www.investopedia.com/.
Piper, M., 2014. Efficient Market Hypothesis: Strong, Semi-Strong, and Weak. [Online]
Available at: http://www.obliviousinvestor.com/

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Rudden, P., 2012. Dont Blame Theory for the Credit Crunch. [Online]
Available at: http://blog.alliancebernstein.com/
Watch, E., 2010. Effect of the Global Credit Crunch on Market. In:
s.l.:http://www.economywatch.com/.

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