Question

A market is used for trading long-term securities. Identify the market and explain any four functions of the above.

Answer 1

1. Promotion of thrift: The capital markets inspire people to save money by offering incentives in the form of attractive rates of interest and dividends.
2. Liquidity: Liquidity securities used in the capital market are negotiable; investors can sell them at any time and convert them into cash as and when necessary
3. Investment avenue: The capital market provides profitable avenues to investors and helps them earn the maximum available return on their funds.
4. Availability of capital: A capital market enables borrowers to obtain needed funds at a reasonable cost. It also enables the government to raise funds through bonds and other types of securities.