The financial system performs the role of communicating information by
A)constantly increasing the liquidity of most assets.
B)constantly reducing the riskiness of most assets.
C)incorporating all available information into the prices of financial assets.
D)providing to investors for a nominal charge all government reports available about a particular company.

Question

Quizplus · Accepted Answer

The financial system incorporates all available information into the prices of financial assets through the process of price discovery, which reflects the collective knowledge and opinions of market participants. This communication of information is essential for efficient allocation of resources and investment decisions. The other options, such as increasing liquidity or reducing riskiness of assets, do not necessarily involve communication of information. Providing government reports about a particular company is also not a primary role of the financial system.

The Financial System Performs the Role of Communicating Information by