State any four functions of 'Stock Exchange.'
'The Stock Exchange performs many vital functions in today's commercial world.' Explain any three such functions.
'Stock Exchange not only contributes to the economic growth but performs many other functions'. Explain any three such functions.
The Stock Exchange serves the sole purpose of providing a market space for purchase and sale of securities in a transparent manner. Its functions can be explained using the following points:
i. To serve as a platform for securities transfer: The Stock Exchange serves as a common platform among buyers and sellers of securities to provide them with liquidity, i.e. ease of convertibility into cash. It also provides free market mechanism to ensure that time and cost of transactions are minimised.
ii. To provide fair deals through market price determination: The market demand and market supply are forces which determine the price of a security. The Stock Exchange makes sure that all buyers deal in that price only and not higher.
iii. To provide investment opportunities: The Stock Exchange lists all securities and allows people to invest in different companies and reap the returns on that investment. This results in the benefit of both companies and investors and hence serves as a foundation of economic growth.
iv. Facilitates prediction: The Stock Exchange facilitates prediction of prices of different securities in accordance with the legal code of conduct for the trade of securities to allow investors to trade cautiously.
Functions of the stock exchange:
1) Provides Liquidity and Marketability: The stock exchange provides a platform where sale and purchase of existing securities can take place. In this way, the stock exchange facilitates the conversion of securities to cash as and when required. In addition, it renders liquidity to long-term securities and can be converted to medium-term and short-term securities
2) Determination of Prices: A stock exchange acts as a link for the interaction of buyers and sellers. In other words, it helps in the interaction of demand and supply forces and thereby helps in establishing the price of securities.
3)Fair and Safe Market: A stock exchange provides a safe and fair market for the trading of securities. It functions according to a well-regulated legal framework