What are the Characteristics of the Financial Market?
By BYJU'S Exam Prep
Updated on: November 9th, 2023
The Characteristics of the Financial Market are that Financial markets have traits like offering security for deals in financial assets and assuring liquidity by providing ways to sell financial assets. Finance and the financial markets play a significant role in the market economy by fostering a virtuous circle of wealth that drives economic growth. This is done by allocating capital to profitable investments.
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Characteristics of the Financial Market
In addition to combining savings into capital and allocating that for investments, and providing quick liquidity of cash, a well-developed financial market also has the following characteristics. Go through the points mentioned below to get a better insight into the role of the financial market.
- Provides liquidity, or the quick availability of cash that many businesses require, such as in the retail industry during major holidays or in agriculture around harvest time.
- Investors benefit from liquidity by knowing they may quickly sell their financial assets for cash if necessary or desired.
- Helps with price discovery, the process by which the forces of supply and demand in a competitive market are used to determine the fair price of a security, commodity, good, or service: Pricing can, therefore, effectively show where financial resources are being used most profitably.
- Enables risk sharing and risk control by diversifying investments and balancing the risk tolerance of individual investors with the risk characteristics of different investments.
- Designed to reduce transaction costs as much as possible. The market must gather and disseminate accurate information that is widely available.
- Borrowers’ loan guarantees must be trustworthy.
Summary:
What are the Characteristics of the Financial Market?
The Characteristics of the Financial Market like providing security for transactions involving financial assets and ensuring liquidity by enabling the sale of financial assets. A well-developed financial market serves other crucial functions in addition to converting savings into capital and allocating that for investments.
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