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Functions of Financial Markets

Functions of Financial Markets

Borrowing and lending:

Financial markets provide funds to investors by lending money at an interest rate known as the cost of borrowing.

Price determination:

Sets or defines fixed or volatile prices for each type of instrument in the market.

Information collection and analysis:

Important information used by market participants to value or estimate prices of a certain instrument.

Risk sharing:

Financial markets eliminate a type of risk known as systematic risk through investment diversification.


The ability to quickly and directly convert securities into cash without value losses during a transaction.


A markets ability to reflect public information on a certain instrument.


Major Market Participants


Responsible for mediating between a buyer and a seller of products, services, or securities.


Smoothes the process of matching the buyer with the seller.

Investment banks:

Involved in the selling of newly issued securities.

 Financial intermediaries:

Mediators between investors and firms when trading securities.

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Risk Warning: Trading in Forex and Contracts for Difference (CFDs) is highly speculative and involves a significant risk of loss. The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument .Read More
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