Question

Financial market in essence are :

• A. Money market
• B. Liquidity oriented market
• C. Capital Market
• D. Credit Market

Answer 1

Answer:

B. Liquidity oriented market

• Financial markets in essence are liquidity-oriented markets. This is because the primary function of financial markets is to provide liquidity to investors and participants.

• Financial markets serve as platforms where financial instruments such as stocks, bonds, derivatives, and other securities are traded. The essence of these markets lies in their ability to provide liquidity - meaning participants can easily buy and sell financial instruments when needed.

• Key characteristics that make financial markets liquidity-oriented:

  1. Easy conversion to cash: Financial instruments can be quickly converted to cash through market transactions

  2. Continuous trading: Markets operate continuously during trading hours, allowing immediate transactions

  3. Price discovery: Markets help determine fair prices for financial instruments through supply and demand

  4. Risk management: Participants can enter and exit positions as needed to manage their financial risks

• While money markets, capital markets, and credit markets are all types of financial markets, they represent specific segments rather than the fundamental essence. The core essence of all financial markets is their liquidity-providing function - enabling participants to convert their financial assets into cash or other desired financial instruments efficiently and at fair market prices.