A capital market is ideal when:

Financial institutions are sufficiently developed

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Capital is most productively allocated

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Finance is available at reasonable cost

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All of these

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Solution

The correct option is D All of these
An ideal capital market is defined by a set of five assumptions.
1: Capital markets are friction-less.
2: All market participants share homogenous expectation, valuerelevant information is costlessly available to all market participants.
3: All market participants are atomistic. No single market participant can affect the market price of a security via trades.
4: The firms investment program is fixed and known.
5: The firms financing is fixed. Once chosen, the firms capital structure is fixed.

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Q. These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is another market in which unsecured and short-term debt instruments are actively traded everyday. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity.
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These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this there is another market in which unsecured and short-term debt instruments are actively traded everyday. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity.

(a) Name the function being performed by the market in the above case.

(b) Also, explain briefly three other functions performed by this market.

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