Assertion: A financial market is a market for the creation and exchange of financial assets.
Reasoning: Financial markets play an important role in the allocation of scarce resources in an economy.
Answer & explanation
Correct answer: option 2
The correct answer is option 2: Both Assertion (A) and reasoning (R) are correct and but R is not the correct explanation of A.
Assertion (A):
- A financial market is a market for the creation and exchange of financial assets.
This is a factual definition of a financial market.
Reasoning (R):
- Financial markets play an important role in the allocation of scarce resources in an economy.
This statement is correct and highlights the role of financial markets in resource allocation.
Does R explain A?
- No, R does not explain A.
The assertion is a definitional statement about the nature of a financial market (what it is), while the reasoning highlights a significant function of financial markets (what they do). While both statements are correct, the reasoning does not directly explain the assertion; it instead elaborates on a different aspect of financial markets.