question_answer 10)

What are the functions of a Financial Market?

Answer:

Financial market plays an important role in the allocation of scarce resources in an economy by performing the following four important functions (i) Mobilization of Savings and Channelizing Them into the Most Productive Uses A financial market facilitates the transfer of savings from savers to investors. It gives choice to the saver of different investments and thus, it helps to channelize surplus funds into the most productive use. (ii) Facilitate Price Discovery In a financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market. (iii) Provide Liquidity to Financial Assets Financial markets facilitate easy purchase and sale of financial assets. Holders of assets can readily sell their financial assets through the mechanism of financial market. (iv) Reduce the Cost of Transactions Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of n financial asset would have to spend to try or otherwise find each other.