Part 1Financial markets perform the basic function of:Part 2
A. mitigating the business cycle B. assuring that governments need never resort to printing money to finance their expenditure C. matching savers with funds to lend to people who want to borrow funds D. providing a risk-free means of storing wealth

Question

Part 1Financial markets perform the basic function​ of:Part 2
A. mitigating the business cycle B. assuring that governments need never resort to printing money to finance their expenditure C. matching savers with funds to lend to people who want to borrow funds D. providing a​ risk-free means of storing wealth

BlackTom AI · Accepted Answer

Take a moment to restate the question in your own words: we’re being asked what fundamental role financial markets fulfill. Now, evaluate each option on its own merits.
Option A: 'mitigating the business cycle' — Financial markets do not directly eliminate or smooth out the business cycle. They influence investment and consumption through interest rates and liquidity, but they don’t by themselves negate business fluctuations. This makes the statement overly broad and inaccurate as a defining function.
Option B: 'assuring that governments need never resort to printing money to finance their expenditure' — This is not correct. Governments sometimes rely on central banks or the financial system to finance deficits, and printing money is still a policy option in some circumstances. Financial markets do not guarantee that governments won’t resort to money creation, so the claim is false.
Option C: 'matching savers with funds to lend to people who want to borrow funds' — This captures a core function of financial markets: they allocate savings to productive borrowers, improving capital allocation, liquidity, and risk sharing. This description aligns with standard finance theory about intermediation and the price mechanism that channels funds to where they’re needed.
Option D: 'providing a risk-free means of storing wealth' — No financial asset is entirely risk-free. Even cash or government securities carry inflation or default risk, and investing generally involves some risk. Marketing financial markets as a risk-free store of wealth is misleading and inaccurate.
In summary, the reasoning above shows why A, B, and D mischaracterize the core purpose of financial markets, while C accurately reflects their primary function of channeling funds from savers to borrowers to facilitate investment and economic activity.

Quiz:Quiz 1

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