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प्रश्न
What are the functions of Financial Market?
उत्तर
A financial market refers to the market where the creation and exchange of financial assets such as shares and debentures takes place. The following are the functions of a financial market.
1. Transfer of Savings and Alternatives for Investment
A financial market acts a link between the savers and the investors. It provides a platform for the transfer of savings from the households to the investors. It also provides savers with various alternatives for investment and thereby, directs the funds to the most productive investment.
2. Establishes the Price
Similar to a commodity, the price of a financial asset is established through the forces of demand and supply for funds. Financial market provides a platform for the interaction of the demand of the funds (represented by the business firms) and the supply of funds (represented by the households). Thereby, it helps in determining the price of the asset being traded.
3. Facilitates Liquidity
An asset or a security can be easily purchased and sold in a financial market. This renders liquidity to the assets. That is, through trading in the financial market assets can be easily converted into cash or cash equivalents.
4. Reduced Cost of Transaction
By rendering information regarding the securities being traded, their price, availability, etc., a financial market helps in reducing the cost of transaction in terms of effort, money and time.
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संबंधित प्रश्न
The market where existing securities are resold or traded is called __________ market.
(a) commodity
(b) secondary
(c) primary
Distinguish between Primarymarket and Secondary Market.
State the functions performed by financial market.
The financial market plays an important role in the allocation of scarce resources in an economy by performing many important functions.’ Explain any three such functions
Distinguish between the following.
Money market and Capital market.
What is financial market? And what is its role?
Answer the following question.
What is meant by the 'Allocative Function' of Financial Markets?
Write a word or a term or a phrase which can substitute the following statement.
A market where people trade financial securities and derivatives at low transaction cost
Study the following case/situation and express your opinion.
Mr. X is the CFO ( Chief Financial Officer ) of PQR Co. Ltd. which is a reputed company in the field of construction business. Often Mr. X has to decide on investing surplus funds of the company for short durations. And at times, he also has to decide the sources from where he can raise funds for short durations.
- Assume on behalf of the company Mr. X has Rs. 5 lakhs and wants to invest for a short period. Should he buy Equity shares or a Certificate of Deposit?
- The company has surplus funds and wants to invest it. However, he needs the money back in 4 months, so should he invest in Treasury Bills or Government Securities?
- Can the company issue a Certificate of Deposit?
Vansh Limited is a large and reputed company which manufactures ventilators. After the outbreak of ‘COVID-19’ in 2020 the company witnessed an increase in revenue by 40%. It has plans to further increase its production capacity and also start production of PPE kits, sanitisers and masks in 2022. The Finance manager of the Company Mr. Rajiv feels confident about the future of the company and its liquidity position. Discuss the meaning of Dividend Decision and in the light of the above statement explain any two factors which should be considered by ‘Vansh Limited’ while formulating the dividend policy of the company.
What are the functions of a financial market?
Match the FUNCTIONS of Financial Markets in Column I with their correct MEANING in Column II
| Column I | Column II | ||
| (a) | Allocated Function | (i) | Establish a price for the financial asset through interaction between house-holds and business firms. |
| (b) | Facilitating Price Discovery | (ii) | Easy purchase and sale of financial assets. |
| (c) | Financial Assets Liquidity | (iii) | Mobilization of savings and channelising them into the most productive use. |
______ is short-term finance repayable on demand, with a maturity period of one day to fifteen days.
Study the following case/situation and express your opinion.
| Jack & Jones, a newly incorporated organization wants to raise capital for the first time by issuing equity shares. |
- Should it go for Primary Market or the Secondary Market?
- What will be the issue of equity shares by Jack & Jones called?
Correct the underlined word and rewrite the following:
IPO is offered to existing equity shareholders.
______ market where the company trades shares for the first time.
Distinguish between:
Primary Market and Secondary Market
