32.

Explain any four functions of 'Financial-Market'.

Financial markets play an important role in the allocation of scarce resources in an economy by performing the following four important functions.
1) Mobilisation of savings and making its best use: A financial market helps to transfer savings from savers to investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.
2) Facilitating Price Discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are investors who supply fund and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.
3. Providing liquidity to financial assets: Financial markets facilitate easy sale and purchase of financial assets. Thus they provide liquidity to financial assets so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.
4) Reducing the Cost of Transactions: Financial markets is a place where the buyers and sellers meet to satisfy their financial needs. Financial market provides valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other.