What are the primary functions of financial markets outlined in the BMC?

The primary functions of financial markets include price discovery, liquidity, and risk management, which play crucial roles in the overall functioning and efficiency of these markets.

Price discovery is the process through which the market determines the price of assets based on supply and demand dynamics. This function allows participants to ascertain the fair value of securities and ensures that prices reflect all available information, facilitating informed decision-making among investors.

Liquidity refers to the ease with which assets can be bought or sold in the market without significantly affecting their price. High liquidity is essential for financial markets as it ensures that investors can enter and exit positions quickly, promoting greater confidence and stability in the market.

Risk management involves the use of financial instruments and strategies to hedge against potential losses. Financial markets provide a platform for various parties to transfer risk through derivatives and insurance products, allowing businesses and individuals to protect themselves from adverse price movements or financial uncertainties.

These functions are fundamental to the economy, enabling capital allocation, fostering investment and innovation, and supporting efficient economic growth. The other choices, while containing elements relevant to financial markets, do not encapsulate the broader and more critical functions outlined in the BMC.