Q."Financial markets are indispensable for the growth of a developing economy." Justify this statement with reference to their functions and role.

This statement asks you to connect the everyday functions of a financial market to the bigger picture of how an entire developing economy actually grows.

The statement is justified because the basic functions of a financial market feed directly into the roles it plays for a developing economy:

• Its function of mobilising savings is what allows India's household savings to become actual industrial and infrastructural investment, rather than remaining idle.
• Its function of facilitating capital formation directly supports the setting up of new industries and the expansion of existing ones — the basic engine of industrial growth.
• Its function of price discovery and allocative efficiency ensures that the economy's limited capital flows to its most productive uses, rather than being wasted on less-promising projects, which matters even more in a capital-scarce developing economy than in a capital-rich one.
• Its function of providing liquidity is what makes investors, both domestic and foreign, willing to commit funds to long-term Indian securities in the first place, since they know they are not permanently locking their money away.
• Beyond individual businesses, financial markets also let the government raise the funds it needs for development spending, and give foreign investors a credible, regulated channel into the Indian economy. …

Answering with only a list of functions or only a list of roles, without explicitly connecting each function to the specific economic role it enables — the quest …