Question

'Financial market plays an important role in the allocation of scarce resources is an economy by performing many important functions.' Explain any three such functions.

Answer 1

'Financial market plays an important role in the allocation of scarce resources is an economy by performing many important functions.' Three functions of financial market are:

a) Mobilization of savings and channelizing them into the most productive uses: Financial markets transfers savings of savers to most appropriate investment opportunities.

b) Provide liquidity to financial assets: In financial markets financial securities can be bought and sold easily so financial markets provide a platform to convert securities in cash.

c) Facilitate price discovery: Demand and supply of financial assets and securities in financial markets help in deciding the prices of various financial securities.