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Questions and Answers
What is a financial market?
What is a financial market?
- A location where physical currencies are exchanged
- An area where real estate transactions occur
- A place where only stocks are traded
- A marketplace where buyers and sellers trade financial assets (correct)
What are the key functions of a financial market?
What are the key functions of a financial market?
- Guaranteeing fixed returns for investors
- Facilitating price discovery and providing liquidity (correct)
- Issuing credit cards to individuals
- Regulating government spending
Which of the following is a characteristic of a well-functioning financial market?
Which of the following is a characteristic of a well-functioning financial market?
- Guaranteed high returns for all investors
- Efficient allocation of capital (correct)
- Limited access to market information
- Inflexible trading hours
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Study Notes
Financial Markets
- A financial market is a medium that facilitates the exchange of financial securities, commodities, or other investments between buyers and sellers.
Functions of a Financial Market
- Facilitates flow of capital between savers and borrowers
- Provides a platform for price discovery, enabling the determination of asset prices
- Enables risk management through hedging and diversification
- Provides liquidity, allowing investors to easily buy and sell securities
- Facilitates the efficient allocation of resources
Characteristics of a Well-Functioning Financial Market
- Transparency: easy access to information about market conditions and transactions
- Efficiency: prices reflect all available information, and resources are allocated optimally
- Liquidity: ease of buying and selling securities without significantly affecting prices
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