Question # 03

Discuss the role of asset pricing in finance and investing .Discuss the market
model and what beta is
Answer

Asset pricing is defined as the rates at which the financial products, like securities, bonds, are
purchased and sold called asset pricing. These rates may represent different factors such as
economics, sentiment and risk. The risk that represents the rate of the financial products is of two
types

1. Systematic
2. Unsystematic

Systematic risk is a type of investment risk that cannot be diversifies and unsystematic risk is
that which is not related with the general market tactics and is involves the individual and
personal stocks.

The role of asset pricing in the market and investment by maintaining the stability of the
financial and policies that is relevant and support to monetary frameworks. Asset pricing is to
turn out to be stronger Key factors of the usage of financial volatility, the distribution of outlets
across industries and time and control the strength of the monetary mechanism. Market
expectations related information and representing the statistical indications of the market or to
minimize the financial conditions of the distress.

Policymakers have been faced with this in recent years Often uncommon trends in asset markets,
including powerful booms and busts, Exceptional power and scope of growing residential
property values, traditionally weak Long-term interest rates, minimal uncertainty and very small
credit spreads. As a consequence, it's got become more relevant to consider what drives the
movements of asset values, to explain the information they convey regarding the potential and
whether they will be integrated into policy decisions.
The behavior of asset prices is necessary for a variety of important decisions, not only for
registered businessmen, but still the bulk of citizens in their everyday lives. The alternative of
saving. In the type of currency, bank deposits or stocks, or even a single-family home, it depends
on a single-family house. What you think of the costs and rewards involved with such various
ways of saving. Asset pricing or stock values are therefore of vital significance to the macro
economy as they are essential to the market. Data on main economic actions on capital
infrastructure and use. Although financial asset prices sometimes tend to represent core values,
experience provides to the opposite, compelling results of incidents typically called bubbles and
crashes.

Capital Asset Pricing Model (CAPM) is a framework that determines the relationship between
the anticipated return and the expense of a security expenditure. Which means that the
anticipated return on security is equal to a risk-free return plus a risk premium that is contingent
on the safety check. It is an example of the CAPM model concept.

The main advantage of CAPM is the predictive valuation of the average cost of equity that the
model can achieve. The CAPM cannot be used in reverse as it necessarily simplifies capital
markets. Financial managers can, however, use it to supplement other strategies and their own
judgement in their attempts to render practical and valuable capital cost estimates.

The Beta is a function of asset price in comparison to the economy in general. The fluctuations
that will be induced by a change in business dynamics in the stock are indicated by Beta.
Example, if the stock price was 1.2 that would cause a 120 percent rise due to a change in the
general economy. The same is true with Beta less than 1.

Question # 04

What are cryptocurrencies? What is the motivation behind their popularity?

In your answer, discuss how their prices behave in recent times and whether
you think this growth can last in this future.
Answer

Cryptocurrency is a physical or simulated currency secured by encryption, rendering forgery or

double-expenditure nearly impossible. Cryptocurrency is a machine or virtual currency designed
to serve as a way of exchange. This uses cryptography to encrypt and verify transactions and to
track the creation of new cryptocurrency devices. Essentially, cryptocurrencies are small entries
in a ledger that no one can alter until strict requirements have been met. .Many cryptocurrencies
are autonomous, block chain based networks, distributed applications hosted on a remote
computing network. Another distinguishing characteristic of cryptocurrencies is that they are not
usually distributed by any central agency, rendering them potentially resistant to political
intervention or exploitation. Unlike every other Fiat money, Cryptocurrency is allowed in certain
shops and businesses, but not in all stores and businesses. Cryptocurrency is becoming more and
more common and accepted as a means of trade. Its acceptance is untouched by the boundaries
of your race or country. Some of the properties of the cryptocurrency is

1. Irreversible
2. Permission less
 3. Fast & Global
4. Pseudonymous
5. Secure

Cryptocurrency is become popular because the most important characteristic of the

cryptocurrency being that it is not governed by any central authority: the autonomous nature of
the block chain renders cryptocurrency theoretically immune to conventional types of
government control and interference. Cryptocurrencies can be submitted directly to all parties
using private and public keys. These transfers would be provided at a lower rate of service,
helping customers to escape high charges and charged by traditional financial firms.
Cryptocurrencies are a perfect way for individuals to perform foreign financial transfers
electronically, without the hassle of coping with pressure from financial authorities and
governments. Cryptocurrencies are becoming the most popular, because it has never been a
means of digitally transferring ownership amongst any two random entities before in human
history, without relying on the trustworthy intermediary. It makes for various modes of contact
based on the translation of a specific native sense.

Cryptocurrencies are usually developed utilizing block-chain technology. Block-chain discusses

how transactions are documented in "units" and time stamped. It's a fairly complex, technical
process, but the outcome is an authenticated block-chain transaction ledger that is very hard for
the hackers which works illegally to tamper with. Criminal operations include tax avoidance,
money smuggling, Ponzi schemes, and hacking of bitcoins to ransom abduction. When demand
for cryptocurrency grows, it offers incentives for suspects to hide behind assumed secrecy and
anonymity. Some economic analysts predict the future of cryptocurrencies to see a significant
change in cryptocurrencies inevitable when financial funding enters the market. In reality, there
is a risk that the block-chain will be exchanged on the NASDAQ (stock market), which will add
credibility to the block chain and use it as an alternative to mainstream currencies. Some people
believe that all of the cryptocurrency needs are a regulated trading fund. ETF (Exchange Trade
Fund) would definitely make it simpler for individuals participating in Cryptocurrencies, but it
still needs a demand to participate in the block - chain that could not be generated directly by the
fund.
Cryptocurrency has been a big trend in recent years, but much has also been known about this
emerging technology. There are also questions and doubts about creativity and the potential to
challenge existing financial processes.

Question # 05

What does it mean to have diversified portfolio? What are the strength and
weakness behind the diversification strategies? In your answer discuss how
diversification may or may not help during the current economic period.
Answer

A diversified portfolio entails investing in different types of securities / products on the market in
order to minimize the effect of a single security or asset. As a lender, it would spend
proportionately on loans, gold and resources to gain market advantages coupled with investment
stability. Diversification allows investors reduce the likelihood that some single business may
have issues when the entire market or trend is performing well. Some of the benefits and strength
of holding a diversified portfolio is given below

1. When the climate of the stock market changes, people's consumer patterns are changing.
Diversification through a range of markets or product lines may help to create an entity's
sustainability across these ups and downs.
2. Many industries can fail due to economic conditions within a limited period.
Diversification helps move away from habits that may deteriorate.

The weakness of the portfolio in which the diversification is not able to work

1. Diversification will be a drawback to weaker investment funds set.

2. If anyone else approaches our assets with carelessness and we do not pay much heed to
them, diversification is not a success, as continuous supervision and quick decision
making are required for diversification.
3. The identification of undervalued firms may not be as easy as it seems to be.
Nevertheless, due to lack of experience and practice, diversification will not work.

In most developing countries, economic diversification remains a challenge and is likely to be

the greatest issue in low-income countries, as well as those whose economies are poor,
landlocked and dominated by primary commodity dependency. Diversification of wealth
amongst these countries Inextricably related to the structural transformation of their economies
and the attainment of higher rates The levels of production resulting from the transfer of human
resources inside and beyond the economy Tracks. Discussing economic diversification by
introducing a definition spanning two related aspects of diversification is

1. Domestic production
2. Trade

Economic diversification is a central feature of economic development in which a country

transitions into a more versatile import and export structure. The absence of economic
diversification is often associated with a rise in external insecurity Shocks that may undermine
the prospects for a longer-term economic recovery. The poorer nations on the planet, all of them
we are often low or geographically isolated, landlocked or highly reliant on primary agriculture
or minerals. To establish the most unified economic structures. It creates a problem in terms of
sector-specific coverage. Growth frequently tends to be imbalanced in the case of mineral-
dependent economies, or sluggish and impossible to maintain. The rural ones, guy. Poverty-
reducing, trade-driven growth has become especially challenging to accomplish in the countries
in which it occurs. The economies are heavily reliant on primary commodities. Nonetheless, this
needs that government priority be given to four main determinants of progress. Diversification
approaches that global agencies and multinational organizations should help Targeted Support
for Economic Impact.

1. Supplying correct reward systems.

2. Investments and regulatory changes targeted at rising trading costs.
3. Efficient strategies that facilitate the transition and reallocation of capital that different
tasks.
4. State initiatives directed at individual business, economic and structural deficiencies.
Diversification tends to reduce volatility and provides a more stable route to balanced growth
and production. Successful diversification is all the more important in the context of the
slowdown in global growth and the imperative. Most developing countries continue to improve
job rates and standards. The drive for exchange and growth is at the core of the plan for global
diversification. Providing the basis for private sector-driven development is the subject of
attention for T&C GDP is a crucial factor in the creation of a larger economic activity base, in
particular around Trade-able products and services.