The following is not a function of financial markets:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Facilitating price increases
Option (1) Providing liquidity to financial assets — A function of financial markets (Incorrect). The holder of a share or a bond can sell it quickly in the market and get cash whenever he needs it.
Option (2) Reducing cost of transactions — A function of financial markets (Incorrect). Buyers and sellers meet on one common platform and get information about the securities there. This saves the time, effort and money they would spend looking for each other.
Option (3) Productively channeling the savings — A function of financial markets (Incorrect). Savings of households reach the investors who can use them in the most productive way.
Option (4) Facilitating price increases — Not a function of financial markets (Correct). The real function is price discovery. Households supply funds and business firms demand them, and the meeting of the two sets a fair price for the financial asset. The price found may go up or down; the market does not exist to push prices up.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. Five questions from a chapter the new book does not even carry. NTA still keeps the pre-rationalised copy close, and one careful read of it covers all five. NCERT (Pre-rationalised Edition):
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