Question

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

Answer 1

Functions of financial market :
1.Mobilisation of Savings and Channelising them into the Most Productive Uses: A financial market facilitates the transfer of savings from savers to investors. Thus, it helps in channelising surplus funds into the most productive uses.
2.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 being traded in a particular market.
3.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.