Question

‘It is a process that allocates or directs funds available for investment into their most productive instrument opportunity’.
This is known as :

• A. Financial planning
• B. Financial Intermediation
• C. Allocative function
• D. Capital budgeting

Hint:

Allocative function is about choosing where to put money for maximum output — a vital part of financial decision-making.

Answer 1

The Correct Option is C

The process described in the statement involves channeling financial resources into areas where they can be used most efficiently and productively. This is called the "Allocative Function." It is a key feature of financial management and economic decision-making.
The allocative function ensures that scarce financial resources are directed toward their most productive uses — i.e., investments or instruments that generate the highest return. This includes decisions made by financial institutions, markets, and the government to achieve optimal utilization of capital.
- Financial Planning is about forecasting and budgeting.
- Financial Intermediation refers to the process of banks/financial institutions channeling funds from savers to borrowers.
- Capital Budgeting is about evaluating large investment projects.
But the specific act of choosing the best option for resource use matches the definition of Allocative Function.
Final Answer: (C) Allocative function