‘In today’s commercial world, the stock exchange performs many vital functions which lead the investors towards positive environment’. Explain how, by giving any four reasons.
Or
’Stock market contributes to better allocation of capital and promoting the habit of investment’. In the light of above statement, enumerate the functions of stock exchange.
The stock exchange is an institution, which provides a platform for buying and selling of existing securities.
Functions of stock exchange :
- Provides Liquidity and Marketability to Existing Securities
It provides a ready and continuous market where securities are bought and sold. It gives investors the chance to dis invest or reinvest.
Thus, regular dealing provides both liquidity and marketability to existing securities. - Pricing of Securities
It Helps in determining the prices of various securities that reflect their real worth. It enables correct pricing of securities through the interplay of demand and supply. The stock market index like SENSEX, reflects the market direction and indicate day-to-day fluctuations in share prices. - Safety of Transactions
It is well regulated and its dealings are well-defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal in the market. - Contributes to Economic Growth
In stock exchange, the process of disinvestment and reinvestment channelise the savings into productive investment avenues. This leads to capital formation and economic growth. - Spreading Equity Cult
It is an organised market, which takes various steps to guide and educate investors, publish information about companies listed on the exchange and ensures better and safe trading practices. These practices have played a vital role in increasing the number of people investing in equity, thus leading to wider ownership of equity. - Provides Scope for Speculation
It is generally accepted that a certain degree of speculation is necessary to ensure liquidity and price continuity in the stock market. Thus, it provides sufficient scope for speculation in a restricted and controlled manner within the provisions of law.