Question

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. 

1. Name the function being performed by the market in the above case. 

2. Also, explain briefly three other functions performed by this market.

Answer 1

1. In the given para, mobilisation of savings and channeling them into the most productive uses is the function of money market. 

2. The other functions performed by the money market are as under : 

• Price discovery – Money market includes both the suppliers and investors of funds. Money market helps in determining current market prices of various securities on the basis of demand and supply. 
• Liquidity – Money market provides ready market for the sale and purchase of financial assets. Financial assets can be converted into cash at any time.
• Lesser cost of transactions – Money market is a common platform where buyers and sellers enter into transactions. It helps to save time, effort and money of investors and lenders of funds.