Discuss any three functions of financial market.
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‘Financial market plays an important role in the allocation of scarce resources in an economy by performing various functions’. Explain any three functions of financial market.
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What are the functions of a financial Market?
Functions of financial market are as follows :
(i) Provides liquidity to financial assets The investors can invest their money, whenever they desire in securities’ through the medium of financial market.
They can also convert their investment into money, whenever they so need. This is how, it provides liquidity to securities.
(ii) Reduces the cost of transactions Financial market provides complete information regarding
price, availability and cost of various financial securities.
So, investors and companies do not have to spend much on getting such information.
(iii) Facilitates 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.