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    Financial Theory and Market Efficiency

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    Please help with the given questions:

    1. What financial theory do you think affects the global capital market the most and why?
    2. What are the implications of major trends of R&D expenditures in the U.S.?
    3. What are the theoretical aspects of market efficiency?

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    Solution Preview

    Step 1
    The financial theory that affects the global capital market the most is the International Fisher Effect. According to this theory the currency of the country with a higher nominal interest rate is expected to depreciate against the currency of the country with lower nominal interest rate as higher nominal interest rates reflect an expectation of inflation. In the global capital market the investor is interested in the direction in which the foreign exchange rate of the country where he plans to invest will move. He looks at the nominal interest rates of that country. ...

    Solution Summary

    This posting gives you a step-by-step explanation of financial theory. Additionally, this solution include two reference sources for further investigation of the given topic.