Some of the important functions of financial market are as follows:

Financial market is a link between the savers and borrowers. This market transfers the money or capital from those who have surplus money to those who are in need of investment.

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Generally the investors are called surplus units and business enterprises are called deficit units. So financial market transfers money supply from surplus units to deficit units. Financial market acts as a link between surplus and deficit units and brings together the borrowers and lenders.

There are mainly two ways through which funds can be allocated, (a) Via bank (b) Financial markets. The households who are the surplus units may keep their savings in banks; they may buy securities from capital market. The banks and financial market both in turn lend the funds to business firm which is called deficit unit.

Bank and financial market are competitor of each other. Financial market is a market for the creation and exchange of financial assets.

 Functions of Financial Markets:

Financial markets perform following four important functions:

1. Mobilization of Savings and channelizing them into Most Productive Use:

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Financial markets act as a link between savers and investors. Financial markets transfer savings of savers to most appropriate investment opportunities.

2. Facilitate Price Discovery:

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.

3. Provide Liquidity to Financial Assets:

In financial markets financial securities can be bought and sold easily so financial market provides a platform to convert securities in cash.

4. Reduce the Cost of Transaction:

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Financial market provides complete information regarding price, availability and cost of various financial securities. So investors and companies do not have to spend much on getting this information as it is readily available in financial markets.