Identify the function performed by Financial Market from the following statement:

"Holders of assets can readily sell their financial assets through the mechanism of the financial market."

Provide liquidity to financial assets

The correct answer is Option (2) → Provide liquidity to financial assets.

"Holders of assets can readily sell their financial assets through the mechanism of the financial market." highlighted the function of providing liquidity to financial assets.

Financial markets play an important role in the allocation of scarce resources in an economy by performing the following four important functions.

1) Providing Liquidity to Financial Assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so 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.

2) Mobilisation of Savings and Channeling them into the most Productive Uses: A financial market facilitates the transfer of savings from savers to investors. It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use.

3) 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 suppliers of funds 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

4) Reducing the Cost of Transactions: Financial markets provide 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. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.