Question

Explain any four functions of financial market.

Answer 1

Any four unctions of financial market are as follows :

a) Mobilization of Savings and Channelizing them into the Most Productive Uses:

A financial market facilitates the transfer of savings from savers to investors. Thus, it helps in channelizing surplus funds into the most productive uses.

b) Facilitating Price Discovery:

Households represent the supply of funds and the business firms represent the demand. The interaction between the demand and supply helps in the price discovery of financial asset, which is being traded in a particular market.

c) Providing Liquidity to Financial Assets:

Financial market facilitates easy purchase and sale of financial assets. In doing so, they provide liquidity, which means that financial assets are easily converted into cash whenever required.

d) Reducing the Cost of Transactions:

Financial markets provide a common platform where buyers and sellers meet. It helps in saving time, effort and money of the buyers and sellers at the time of trading in the market, by providing them valuable information.