MOHD.
MOKTASID HOSSAIN BHUIYAN
ID: 19304024
ANSWER TO THE QUES. NO. 1
There are actually four factors that influences the market price of the stocks listed. Those factors
are 1. Government, the government hold the most power in influencing the stock market as they
can easily manipulate the fiscal and monitory policies which influences the stock market. A
country’s central bank will periodically increase the interest rate to slow down the growth and
this is called monitory policy. To stabilize prices government will increase or decrees its
spending and this is fiscal policy. 2. International transaction, the stock market is influenced by
the growth of the country and transection between two country will directly play a role in the
market. Countries that are more export oriented will see improvement in their stock prices as
new cash in coming where as importing countries will see loss in stock prices. 3. Speculation and
Expectation, these two a deeply integrated in the financial system. Different people have
different perspective how the prices will change in future so the trend is affected by that. 4.
Supply and Demand, a push and pull dynamic is created by the supply and demand for products
and services. If the prices are higher the supply will increase and demand will decrease. If the
price drops the demand will increase where as the supply will decrease.
An entity which acts as the middleman in any financial transection between investment bank or
commercial bank is called financial intermediary. They play a huge role in the financial market.
They offer benefits to the average consumer which includes safety and liquidity. They can make
it easy for normal people to invest in the financial market by creatin a efficient market and
lowering the cost of doing business.
For the economic growth of a country an efficient market is necessary. Having an efficient
market helps in the direct flow of the savings and investments in the economy which leads to the
contribution in the production of different goods and services. If the market is not efficient than
average people will not have enough money to save. If the price suddenly increases or inflation
increases, they cannot save and it will also prevent then from investing. Investing helps the
country to grow as the money keeps circulating. People will not take loan since the interest rate
will not be stable. So, this why a efficient market is needed to help the country grow.
ANSWER TO THE QUES. NO. 2
To understand the relationship between Interest rate, Inflation and investment first we need to
know what inflation is. Inflation is the rise of the average cost of everyday necessities over time.
Inflation and interest rate have a negative relationship.
In a country the central bank is responsible for the cash flow and they are tasked to control and
monitor it. Inflation raises up the value of everything and it means too much cash is circulating in
the country which brings down the purchase power of the currency. So, to stop that central bank
will issue short term high interest rates to control inflation rate of the economy. In the U.S. their
central banks federal reserve system controls the interest rate to attempt to influence the inflation
rate by manipulating the target for federal reserve system. The investment rate is also affected by
inflation. Investments see a huge drop as the inflation increases. Even if the interest rates are
high people usually do not have enough money to save. For example, typically investors buy
fixed bond but bonds face price drop as inflation increases.
We know, PV= FV/ (1+r) ^n, we can see from this equation of present value that time and
interest rate is in the denominator. So, it indicates that if the time of interest rate were to increase
the present value will actually decrees. Suppose, someone needs 50000 BDT after 5 years so he
decided to put the money in a bank and the bank will give him 10 percent interest. So, by the
equation of present value he needs to put in 31046 BDT now. But if the time were to increase to
7 years and the interest rate were to 15 percent then the amount currently needed would be 18797
BDT.
