Functions of financial market

FINANCIAL MARKET

Bring together borrowers and lenders together, for the creation and exchange of financial assets

In to the most productive investment opportunity

Classification of Financial Markets

• Capital markets
• Money markets

FUNCTIONS OF THE FINANCIAL MARKET

1. Pricing of securities :
   • The price of anything depends upon the demand and supply factors.
   • Demand and supply of financial assets and securities in financial markets help in deciding the prices of various financial securities; where business firms represent the demand and the households represent the supply.
2. Reduce the Cost of Transactions:
   • By providing valuable information to buyers and sellers of financial assets, it helps to save time, effort, and money that would have been spent by them to find each other.
   • Also, investors can buy/sell securities through brokers who charge a nominal commission for their services.
   • This way financial market facilitates transactions at a very low cost.
3. Add Liquidity to Financial Assets:
   • Financial markets provide liquidity to financial instruments by providing a ready market for the sale and purchase of financial assets.
   • Whenever the investors want, they can invest their savings into long term investments and
   • Whenever they want, they can sell the investments/ instruments and convert them into cash.
4. Mobilization of Savings into the most Productive Uses:
   • Facilitates transfer of savings from the savers to the investors.
   • Financial markets help people to invest their savings in various financial instruments and earn income and capital appreciation.

Types of Financial Markets