1.

State any four functions of the financial market.

Answer»

Functions of financial market: 

(i) Capital formation:

  • Capital is the main part of the functioning of the business.
  • The capital market provides a channel through which savings flow to organizations in the form of capital.
  • This leads to capital formation.

(ii) Transfer of Resources:

  • The financial market is one of the key sources of transfer of resources.
  • The financial market facilitates the transfer of real economic resources from lenders to ultimate users.

(iii) Mobilization of funds:

  • Investors that have savings must be linked with corporate that require investment.
  • The financial market enables the investors to invest their saving according to their choices and risk assessment.
  • This will utilize funds and the economy will boom.

(iv) Price determination:

  • The financial instruments traded in a financial market get their prices from the mechanism of demand and supply.
  • The interaction between demand and supply will help to determine the prices.


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