Read the following passage and answer the question.

Rajan is working to coordinate the operations of different departments, such as production and sales, using principles of financial management. He often brings together people from both departments, encouraging them to work within their allocated budgets. Through careful analysis, he links current decisions with their future outcomes, particularly in key areas like investment and financing. By connecting these two decisions, he is able to make informed choices. At the end of the year, Rajan evaluates the performance of various departments, assessing revenue generated and expenses incurred. While he understands that no business is entirely risk-free, he focuses on minimizing potential risks, thereby setting the foundation for a more secure future. His ability to stay less involved in day-to-day operations is also a positive aspect of his management style.

Which of the following are two major alternative mechanisms through which allocation of funds can be done?

Banks and Financial Markets

The correct answer is Option 4 - Banks and Financial Markets.

Banks and Financial Markets are the two major alternative mechanisms through which allocation of funds can be done.

There are two major alternative mechanisms through which allocation of funds can be done via banks or via financial markets. Households can deposit their surplus funds with banks, who in turn could lend these funds to business firms. Alternately, households can buy the shares and debentures offered by a business using financial markets. The process by which allocation of funds is done is called financial intermediation. Banks and financial markets are competing intermediaries in the financial system, and give households a choice of where they want to place their savings.