Final answer:
An effective process of capital allocation in financial capital markets promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities.
Step-by-step explanation:
An effective process of capital allocation in financial capital markets promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities.
For example, when companies sell shares of stock and issue bonds, they raise capital that can be used to invest in new projects, research and development, and expansion. This capital allocation process drives productivity by funding these initiatives and allowing companies to grow.
Furthermore, capital markets provide a platform for investors to buy and sell securities, which promotes liquidity and efficiency in the market. This facilitates the flow of capital to where it is most needed and encourages innovation as companies have access to funding for their ideas and projects.