Functions of Financial Markets

Functions: The functions via an intermediate financial markets are as follows:

•          Transfer of resources: financial markets facilitate the transfer of real economic resources from lenders to final borrowers.

•          Increased income: Financial markets allow lenders to earn interest or dividends on surplus funds invisible, thus contributing to the improvement of individual and national income.

•          Productive use: The financial markets allow the productive use of borrowed funds. Improved income and gross domestic production.

•          Capital formation: financial markets provide a channel through which the flow of new savings to help capital formation of a country.

•          Price determination: Financial markets determine the prices of financial assets traded by the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on supply and demand through the mechanism called process of price discovery.

•          Selling mechanism: Financial markets provide a mechanism for the sale of a financial asset by an investor to provide the benefit of marketability and liquidity of these assets.

•          Information: The activities of participants in the financial markets as a result of the production and dissemination of information consistent with the various market segments. To reduce the transaction costs of financial assets.

 

•          Provide the borrower with funds to enable them to carry out their investment projects.

•          Lenders provide productive assets to enable them to gain wealth through the deployment of its assets in bonds of production.

•          Providing liquidity in the market to facilitate the exchange of funds.