Functions of Stock Exchange
The various functions of a Stock Exchange are explained
below.
The various functions of a Stock Exchange are
explained below.
Stock Exchange is, in fact, a market for existing
securities. If an investor wants to sell his securities, he can easily and
quickly dispose them off on a stock exchange. In other words, he can convert
his shares into cash and with the same ease he can convert his cash into
securities. This easy marketability of securities increases their liquidity
(conversion of securities into cash easily and quickly) and consequently raises
their value.
The prices at which securities are bought and sold
are recorded and made public. These prices are called “market quotations”. One
can easily evaluate the worth of one’s securities on the basis of these
quotations. The lender can easily assess the worth of security offered for
loan.
All dealings in a stock exchange are in accordance
with well-defined rules and regulations. For example, brokers cannot charge
higher rate of commission for their services. Any malpractice will be severely
punished. Thus stock exchange provides reasonable measure of safety and fair dealing
in buying and selling of securities.
People like to invest in the shares of such
companies which yield good profits. The savings of individuals are directed
towards promising companies which declare good dividends over a period of time.
But for the stock exchanges, these savings are likely to be wasted on the
shares of unprofitable units.
The publicity which the stock exchange gives to
various industrial securities and their prices and the facilities provided by
it for their purchase and sale induce people to save and invest. Stock
exchanges thus ensure a steady flow of capital into industry and assists
industrial development.
Speculation is an integral part of stock exchange
operations. As a result of speculation, demand for and supply of securities are
equalized. Similarly, price movements are rendered smoothly.
Speculators and underwriters hold for a temporary
period, securities issued by new companies. They unlock them when the market is
prepared to absorb the new issues.
Listed companies are required to furnish all
important information relating to capital management, dividend distribution
etc, and forward copies of financial statements, annual reports etc, to the
stock exchange. They publish every year, books detailing the financial position
of companies. Thus, it gives vital information to the investing public for
deciding on investment.
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