(a) What are the five functions of a financial market? (5 marks)

(b) Usually, basic financial markets have five basic functions in a capitalistic economy: For each of the functions cited below, explain how financial markets perform each function in detail.

1. They make it possible for corporations and governmental units to raise capital. (2 marks)

2. They help to allocate capital toward productive uses. (2 marks)

3. They provide an opportunity for people to increase their savings by investing in them. (2 marks)

4. They reveal investors judgments about the potential earning capacity of corporations, thus giving guidance to corporate managers. (2 marks)

5. They generate employment and income. (2 marks)