Which of the following is NOT a function of the financial market?
- A financial market facilitates the transfer of savings from investors to savers.
- Determination of a price for the financial asset with the help of market forces of demand and supply.
- Financial markets increase the cost of transactions due to "n" number of securities being traded in the market.
- It facilitates the easy purchase and sale of financial assets.
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: 1 and 3
- Statement 1: “Transfer of savings from investors to savers” → Incorrect. Financial markets transfer funds from savers to investors, not the other way round.
- Statement 2: Price determination through demand and supply → Correct function. Financial markets help in price discovery.
- Statement 3: Increase the cost of transactions → Incorrect. Financial markets actually reduce transaction costs by providing liquidity and easy access.
- Statement 4: Facilitates easy purchase and sale → Correct function. This refers to liquidity, which is a key function.