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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937
BuyFind

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937

Solutions

Chapter
Section
Chapter 2, Problem 1Q
Textbook Problem

How does a cost-efficient capital market help reduce the prices of goods and services?

Expert Solution
Summary Introduction

To identify: The reason behind the reduction in price due to the cost effectiveness of capital market.

Introduction:

Capital market: A market where the companies are registered and issue the long-term debt and equity securities to the public. Primary market and secondary market are the types of capital market. Capital market mainly raises the long-term finances.

Answer to Problem 1Q

  • In a cost efficient market, the investors are ready to invest more money due to which money supply increase and price of goods and services reduce.
  • In cost efficient market, the price of the intermediation and the cost to borrower would be lower due to which the price of goods and services will also reduce.

Explanation of Solution

  • The cost efficient market is a market where the goods and services are available at price which is close to its intrinsic value and investors thought that the market will move according to the predictions.
  • The investors can be able to invest the more prices in market.
Conclusion

Hence, due to increase in investments and availability of goods and services at close to its intrinsic value are the reasons in the reduction of the price of goods and services.

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