Mr Menon is a financial consultant working as a freelancer. He said "Financial markets facilitate easy purchase and sale of financial assets". Identify which function of the financial market he was referring to:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Providing liquidity to financial assets.
Option (1) Mobilization of savings — Incorrect. This function collects savings and sends them to their most productive use. It is not about how easily assets can be sold.
Option (2) Facilitating price discovery — Incorrect. This function fixes the price of a financial asset through the demand and supply of funds.
Option (3) Reducing the cost of transactions — Incorrect. This function saves the time, effort and money that buyers and sellers would spend in finding each other and getting information.
Option (4) Providing liquidity to financial assets. — Correct. Liquidity means how quickly an asset can be turned into cash. Because a financial market makes it easy to buy and sell shares and bonds, a holder can sell them and get cash whenever he needs it.
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):
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