Q. 1

What are the functions of a financial market?

Answer :

The financial market is a place where trading of securities takes place. The main functions of financial market are –

1. Mobilisation and Channelization of Savings: Through financial market, the savings of the people can be channelised into a profitable manner. The savings of one will become the capital for another and the money kept idle can be put into the work to attract more money and to multiply itself.

2. Price Discovery: It helps in determining the prices of securities with help of the forces of demand and supply. It helps the investors in getting proper price for their investments and savings.

3. Provides Liquidity: The financial market provides liquidity because the buyers and the sellers of all the securities are readily available. The investors can invest their money as well as can also convert their investment into money as and when required.

4. Reduced Cost of Transactions: People need information regarding various aspects at the time of buying and selling of securities, which requires both time and money. The financial market makes it easy to obtain all type of information without spending any money. So it reduces the cost of transactions.

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