A stock exchange is a market functioning to sell and purchase shares and bonds. These are issue by government bodies as well as public and municipal companies. There are predefined laws and regulations that play an active role in the acquiring and selling of such things. Let us look at the key primary functions of stock exchange in this topic.
Since this market does not directly deal with money, instead conducts exchanges relevant to securities. This types of market is refer as a capital market. The stock exchange definition is commonly related with the term shares. You might have heard about purchasing or selling shares at a given price, or even that the price of shares is either booming or plunging.
Top 9 – Primary Functions of Stock Exchange
To comprehend the importance of stock exchange, you should grasp the processes of stock exchange. Having a strong knowledge of the workings will aid in acquiring an overall comprehension of the issue. Some of the important primary functions of stock exchange are mention below:
Liquidity
The main role of stock market is to provide ready market for sale and acquisition of securities. The presence of stock exchange market gives confidence to investors that their investment can be convert into cash whenever they choose.
The investors can invest in long term investment projects without any fear, as because of stock exchange they can convert long term investment into short term and medium term.
Pricing of Securities
The stock market helps to value the securities on the basis of demand and supply variables. The stocks of wealthy and expansion orient companies are value more as there is more demand for such assets.
The assessment of securities is vital for investors, government and creditors. The investors can know the value of their investment, the creditors may value the creditworthiness and government can impose taxes on value of securities.
Safety of Transactions
In stock market only the listed securities are exchangeable and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company.
The organization which are register they also have to operate inside the severe laws and regulations. This ensures safety of dealing through stock exchange.
Spreading of Equity Cult
The stock market is responsible for promoting investment in ownership securities among the general people. It fulfils this purpose by regulating emerging issues, enhancing trading procedures, and teaching citizens about the benefits of financial planning and saving.
Better Allocation of Capital
The shares of profit earning firms are quote at higher values and are regularly tradable so such corporations can readily raise fresh cash from stock market. The general public hesitates to invest in securities of loss making enterprises. So stock exchange enables distribution of investor’s capital to profitable channels.
Economic Barometer
A stock exchange is a reliable barometer to measure the economic condition of a country. Every considerable alteration in country and economy is reflect in the value of shares.
The growth or drop in the share values shows the boom or recession cycle of the economy. Stock exchange is also refer as a pulse of economy. Also refer as economic mirror which reflects the economic state of a country.
Promotes the Habits of Invest and Savings
The stock market offers significant potential of investment in numerous securities. These tempting prospects inspire customers to save more and invest in securities of business sector rather than investing in unproductive assets such as gold, silver, etc.
Providing Scope for Speculation
In order to retain liquidity and achieve a healthy balance between the demand for and supply of securities, the stock market encourages reasonable speculation on the value of underlying assets.
Contributes to Economic Growth
In stock exchange securities of various companies are purchased and sold. Thus process of disinvestment and reinvestment helps to invest in most productive investment proposal and this contributes to capital development and economic advancement.
Conclusion
The key functions of stock exchange is control by Securities and Exchange Board. Therefore, every stock market is establish to compel and comply by the pre-fixed norms and rules. In addition, they should also know how the trading of bonds and debentures can directly effect business growth. A wider insight into operation of stock exchange will help them in knowing the topic adequately.