1. Evaluate whether the following actions are likely to increase stock market efficiency, decrease it, or leave it unchanged, and explain why.
A) The government imposes a transaction tax of 1% on all stock transactions
Increase Efficiency______Decrease Efficiency_______Leave unchanged _______
B) The securities exchange regulators impose a restriction on all short sales to prevent rampant speculation.
Increase Efficiency______Decrease Efficiency_______Leave unchanged _______
C) An option market, trading call and put options, is opened up, with options traded on many of the stocks listed on the exchange.
Increase Efficiency______Decrease Efficiency_______Leave unchanged _______
D) The stock market removes all restrictions on foreign investors acquiring and holding stock in companies.
Increase Efficiency______Decrease Efficiency_______Leave unchanged _______
2. You are valuing an Indian company in rupees. The current exchange rate is Rs 45 per dollar and you have been able to obtain a 10-year forward rate of Rs 70 per dollar. If the U.S. Treasury bond rate is 5%, estimate the riskless rate in Indian rupees.