Which of the following is not the function of financial markets:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Promotion of fair practices in securities market
A financial market brings together those who have savings to invest and those who need funds.
Option (1) Mobilisation of savings and channeling them into the most productive uses — A function of financial markets (Incorrect). Savings flow through the market to the firms that can use them best.
Option (2) Reducing the cost of transactions — A function of financial markets (Incorrect). Buyers and sellers find each other in one place and get information about the securities, which saves time, effort and money.
Option (3) Facilitating price discovery — A function of financial markets (Incorrect). The price of a security is set by the demand and supply of the many buyers and sellers in the market.
Option (4) Promotion of fair practices in securities market — Not a function of financial markets (Correct). Promoting fair practices and a code of conduct is a protective function of SEBI, the regulator of the market. The market itself does not regulate.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.
NCERT (Pre-rationalised Edition): “Protective Functions 1. Prohibition of fraudulent and unfair trade practices like making misleading statements, manipulations, price rigging etc.
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