question_answer 14)

What are the functions of a Stock Exchange?

Answer:

The efficient functioning of a stock exchange creates a conducive climate for an active and growing primary market following the important functions of a stock exchange (i) Providing Liquidity and Marketability to Existing Securities The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold. It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy marketability to the existing securities in the market. (ii) Pricing of Securities Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market. (iii) Safety of Transactions The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework which ensures that the investing public gets a safe and fair deal on the market. (iv) Contributes to Economic Growth A stock exchange is a market in which existing securities are resold or traded. This process of disinvestment and reinvestment saving get channelized in to productive investment avenues. This leads to capital formation and economic growth. (v) Spreading of Equity Cult The stock exchange plays vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments. (vi) Providing Scope for Speculation The stock exchange provide' sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner.