What is a key function of financial markets?

A key function of financial markets is to enable the buying and selling of securities. Financial markets serve as platforms where investors can trade assets such as stocks, bonds, and other financial instruments. This trading activity provides liquidity, which ensures that assets can be easily bought and sold without significantly affecting their prices.

Additionally, financial markets facilitate price discovery, allowing the valuation of securities through the forces of supply and demand. This creates an environment where investors can pursue their financial goals by participating in various investment opportunities.

The other options touch on aspects that contribute to the functioning of financial markets but do not represent their primary function. For instance, while regulations on interest rates may influence financial markets, they originate from governmental or central bank policies, not the markets themselves. Moreover, while markets may experience volatility, they do not eliminate it; rather, they reflect the fluctuations resulting from investor sentiment and macroeconomic factors. Lastly, assessing credit risk is typically the role of credit rating agencies or financial institutions rather than the markets as a whole.