One economic function of a financial market is to reduce the cost of transacting. There are two costs associated with transacting: search costs and information costs.

Question

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Financial markets provide a centralized platform for buyers and sellers to trade assets, which reduces search costs as buyers no longer need to physically search for sellers and vice versa. Financial markets also provide access to a vast amount of information, reducing information costs as buyers and sellers can access all the necessary information about an asset in one place before making a transaction. Therefore, financial markets help reduce the cost of transacting.

One Economic Function of a Financial Market Is to Reduce