Functions of financial markets:
(i) Mobilisation of fund:
(a) A financial market facilitates the transfer of savings from saver to investors.
(b) It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use.
(ii) Facilitating price discovery:
(a) In the financial market, the households are the suppliers of funds and business firms represent the demand.
(b) Such forces of demand and supply helps to establish a price for the financial asset which is being traded in that particular market.
(iii) Providing liquidity to financial assets: Financial markets provide liquidity to financial assets by facilitating easy purchase and sale of financial assets, through the mechanism of financial market.
(iv) Reducing the cost of transactions:
(a) The financial markets reduce the cost of transactions by providing a common platform where buyers and sellers can do the purchase and sale of financial assets.
(b) It helps to save time, cost and efforts in searching for counter parties.