Financial markets provide valuable information about the securities being traded in the market. What is the direct result of this?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Buyers and sellers save time, effort and money in finding each other.
Option (1) Holders of financial assets can easily convert them into cash whenever required. — Incorrect. Easy conversion into cash is liquidity. It comes from the easy purchase and sale of financial assets.
Option (2) Savers get the choice of different investments for their surplus funds. — Incorrect. Giving savers a choice of investments is part of mobilisation of savings. It comes from the transfer of savings from savers to investors.
Option (3) Buyers and sellers save time, effort and money in finding each other. — Correct. With information on the securities, buyers and sellers need not search for each other. This saves time, effort and money, and so the market reduces the cost of transactions.
Option (4) Entrepreneurs get funds to set up new enterprises or to expand existing ones. — Incorrect. Moving funds to entrepreneurs is the work of the primary market. It comes from issuing new securities.
NCERT (Pre-rationalised Edition): “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.” |