Chartered Financial Analyst Level 1

A well-functioning financial system facilitates the allocation of capital and the execution of transactions efficiently and securely. Key components include financial intermediaries (banks, broker-dealers, payment processors) that transform and allocate funds between savers and borrowers; rules and regulation (legal framework, supervision, investor protection) that reduce information asymmetry and protect property rights; and market infrastructure (payment systems, clearinghouses, settlements, exchanges) that lower transaction costs and operational risk and enable trade. Option A is incorrect because pricing inefficiencies are a problem, not a feature, and while central banks and regulators are important, the phrase pairs them with an undesirable element. Option B is incorrect because high transaction costs and government monopolies impede market functioning. Therefore option C is the correct choice.