It is nowhere more pronounced as in the financial markets because it is well recognized that a wide array of securities enable the economic agents to better deal with the uncertainty of the future. 2. Secondly, there must be transparency. The financial market is characterized by information asymmetry, both pre and post transaction.
The borrower or investee always knows more about itself than the lender or the investor. The markets use various mechanisms to address this problem. Financial disclosures and ratings are two most common means, the integrity of which is critical to a well-functioning financial market. 3. Thirdly, there must be liquidity. A market without liquidity serves no purpose.