B Com Exam > B Com Questions > What do you mean by stock exchange ? What are...
Start Learning for Free
What do you mean by stock exchange ? What are its functions?
Verified Answer
What do you mean by stock exchange ? What are its functions?
Stock exchange is a market place where stock, shares and other types of securities are bought and sold. It is market where the owners may purchase or sell/ dispose off their securities as per certain well defined rules and regulations. Such securities include shares and debentures issued by public companies, bonds and debentures issued by government, public corporation and municipal and port trust Board of Directors.
(1) Providing Liquidity and Marketability to Existing Securities:
(1) Providing Liquidity and Marketability to Existing Securities:
The stock exchange is a market place where previously issued securities are traded. Various types of securities are traded here on regular basis.
Whenever required, an investor can invest his money through this market into securities and can reconvert this investment into cash. Availability of ready market for sale and purchase of securities increases their marketability and enhances liquidity.
(2) Pricing of Securities:
A stock exchange provides platform to deal in securities. The forces of demand and supply work freely in the stock exchange. In this way, prices of securities are determined.
(3) Safety of Transactions:
Stock exchanges are organised markets. They fully protect the interest of investors. Each stock exchange has its own laws and bye-laws. Each member of stock exchange has to follow them and if any member is found violating them, his membership is cancelled.
(4) Contributes to Economic Growth:
A stock exchange provides liquidity to securities. This gives the investor a double benefit-first, the benefit of the change in the market price of securities can be taken advantage of, and secondly, in case of need for money they can be sold at the existing market price at any time.
These advantages provided by the share market encourage the people to invest their money in securities. In this way, people’s money gets invested in industries and economic development becomes possible.
(5) Spreading Equity Cult:
Share market collects every type of information (more particularly about their economic condition) in respect of the listed companies. Generally, this information is published or in case of need anybody can get it from the stock exchange free of any cost.
In this way, the stock exchange guides the investors by providing various types of information. Consequently, the number of shareholders in companies is increasing continuously. Thus, the stock exchanges are playing a vital role in ensuring wider share ownership.
(6) Providing Scope for Speculation:
When securities are purchased with a view to getting profit as a result of change in their market price, it is called speculation. It is allowed or permitted under the provisions of the relevant Act. It is accepted that in order to provide liquidity to securities, some scope for speculation must be allowed. The share market provides this facility.
This question is part of UPSC exam. View all B Com courses
Most Upvoted Answer
What do you mean by stock exchange ? What are its functions?
A stock exchange is an exchange where stock brokers and traders can buy and/or sell stocks (also called shares), bonds, and other securities. ... Stock exchanges often function as "continuous auction" markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange.
Functions of the Stock Exchange
Liquidity and Marketability: One of the main drawing factors of the stock exchange is that it enables high liquidity. The securities can be sold at a moment’s notice and be converted to cash. It is a continuous market and the investors can divest and reinvest with ease as per their wishes.
Price Determination: In a secondary market, the only way to determine the price of securities in via the rules of supply and demand. A stock exchange enables this process via constant valuation of all the securities. Such prices of shares of various companies can be tracked via the index we call the Sensex.
Safety: The government strictly governs and regulates the stock exchanges. In the case of the BSE, the Securities Board of India is the governing body. All transactions occur within the legal framework. This provides the investor with assurances and a safe place to transact in securities.
Contribution to the Economy: As we know the stock exchange deals in already-issued securities. But these securities are continuously sold and resold and so on. This allows the funds to be mobilized and channelized instead of sitting idle. This boosts the economy.
Spreading of Equity: The stock exchange ensures wider ownership of securities. It actually educates the public about the safety and the benefits of investing in the stock market. It ensures a better quality of transactions and smooth functioning. The idea is to get more public investors and spread the ownership of securities for the benefit of everyone.
Speculation: One often hears that the stock exchange is a speculative market. And while this is true, the speculation is kept within the legal framework. For the stake of liquidity and price determination, a healthy dose of speculative trading is necessary, and the stock exchange provides us with such a platform.
Functions of the Stock Exchange
Liquidity and Marketability: One of the main drawing factors of the stock exchange is that it enables high liquidity. The securities can be sold at a moment’s notice and be converted to cash. It is a continuous market and the investors can divest and reinvest with ease as per their wishes.
Price Determination: In a secondary market, the only way to determine the price of securities in via the rules of supply and demand. A stock exchange enables this process via constant valuation of all the securities. Such prices of shares of various companies can be tracked via the index we call the Sensex.
Safety: The government strictly governs and regulates the stock exchanges. In the case of the BSE, the Securities Board of India is the governing body. All transactions occur within the legal framework. This provides the investor with assurances and a safe place to transact in securities.
Contribution to the Economy: As we know the stock exchange deals in already-issued securities. But these securities are continuously sold and resold and so on. This allows the funds to be mobilized and channelized instead of sitting idle. This boosts the economy.
Spreading of Equity: The stock exchange ensures wider ownership of securities. It actually educates the public about the safety and the benefits of investing in the stock market. It ensures a better quality of transactions and smooth functioning. The idea is to get more public investors and spread the ownership of securities for the benefit of everyone.
Speculation: One often hears that the stock exchange is a speculative market. And while this is true, the speculation is kept within the legal framework. For the stake of liquidity and price determination, a healthy dose of speculative trading is necessary, and the stock exchange provides us with such a platform.
Community Answer
What do you mean by stock exchange ? What are its functions?
Stock Exchange:
A stock exchange is a marketplace where trading of stocks, bonds, and other securities takes place. It is a platform that facilitates the buying and selling of financial instruments between buyers and sellers. Stock exchanges play a crucial role in the global economy as they provide liquidity, transparency, and a regulated environment for investors to trade securities.
Functions of a Stock Exchange:
1. Facilitating Trading: The primary function of a stock exchange is to provide a platform for the trading of securities. It enables individuals, institutional investors, and companies to buy and sell shares of publicly listed companies. The exchange acts as an intermediary, matching buyers with sellers and ensuring fair and efficient transactions.
2. Providing Liquidity: Stock exchanges provide liquidity to the market by allowing investors to convert their investments into cash. Liquidity refers to the ease with which securities can be bought or sold without causing significant price fluctuations. The existence of a stock exchange ensures that there is a ready market for securities, promoting investor confidence.
3. Price Discovery: Stock exchanges play a crucial role in price discovery. The constant buying and selling of securities on the exchange help determine their market value. The interaction of supply and demand in the marketplace leads to the establishment of fair prices for securities, reflecting their perceived value.
4. Ensuring Transparency: Stock exchanges operate in a regulated environment, ensuring transparency in trading activities. They require companies to disclose relevant information to the public, including financial statements, annual reports, and any material events that may impact the company's value. This transparency allows investors to make informed decisions and reduces the risk of insider trading.
5. Regulating Market: Stock exchanges have regulatory bodies that oversee trading activities and enforce rules and regulations. These regulations aim to maintain fair and orderly markets, prevent fraud and manipulation, and protect the interests of investors. The exchange monitors compliance with listing requirements and trading rules to ensure market integrity.
6. Providing a Platform for Capital Formation: Stock exchanges facilitate capital formation by providing companies a platform to raise funds through the issuance of new securities. Companies can issue shares to the public and raise capital for expansion, research and development, or other business activities. This allows investors to participate in the growth of companies and promotes economic development.
7. Offering Investment Opportunities: Stock exchanges offer a wide range of investment opportunities to individuals and institutional investors. Investors can diversify their portfolios by investing in various sectors, industries, and geographic regions. The exchange provides a platform to trade not only stocks but also bonds, derivatives, and other financial instruments.
In conclusion, stock exchanges play a vital role in the financial system by facilitating trading, providing liquidity, ensuring transparency, and regulating the market. They are essential for capital formation, price discovery, and offering investment opportunities to individuals and institutions.
A stock exchange is a marketplace where trading of stocks, bonds, and other securities takes place. It is a platform that facilitates the buying and selling of financial instruments between buyers and sellers. Stock exchanges play a crucial role in the global economy as they provide liquidity, transparency, and a regulated environment for investors to trade securities.
Functions of a Stock Exchange:
1. Facilitating Trading: The primary function of a stock exchange is to provide a platform for the trading of securities. It enables individuals, institutional investors, and companies to buy and sell shares of publicly listed companies. The exchange acts as an intermediary, matching buyers with sellers and ensuring fair and efficient transactions.
2. Providing Liquidity: Stock exchanges provide liquidity to the market by allowing investors to convert their investments into cash. Liquidity refers to the ease with which securities can be bought or sold without causing significant price fluctuations. The existence of a stock exchange ensures that there is a ready market for securities, promoting investor confidence.
3. Price Discovery: Stock exchanges play a crucial role in price discovery. The constant buying and selling of securities on the exchange help determine their market value. The interaction of supply and demand in the marketplace leads to the establishment of fair prices for securities, reflecting their perceived value.
4. Ensuring Transparency: Stock exchanges operate in a regulated environment, ensuring transparency in trading activities. They require companies to disclose relevant information to the public, including financial statements, annual reports, and any material events that may impact the company's value. This transparency allows investors to make informed decisions and reduces the risk of insider trading.
5. Regulating Market: Stock exchanges have regulatory bodies that oversee trading activities and enforce rules and regulations. These regulations aim to maintain fair and orderly markets, prevent fraud and manipulation, and protect the interests of investors. The exchange monitors compliance with listing requirements and trading rules to ensure market integrity.
6. Providing a Platform for Capital Formation: Stock exchanges facilitate capital formation by providing companies a platform to raise funds through the issuance of new securities. Companies can issue shares to the public and raise capital for expansion, research and development, or other business activities. This allows investors to participate in the growth of companies and promotes economic development.
7. Offering Investment Opportunities: Stock exchanges offer a wide range of investment opportunities to individuals and institutional investors. Investors can diversify their portfolios by investing in various sectors, industries, and geographic regions. The exchange provides a platform to trade not only stocks but also bonds, derivatives, and other financial instruments.
In conclusion, stock exchanges play a vital role in the financial system by facilitating trading, providing liquidity, ensuring transparency, and regulating the market. They are essential for capital formation, price discovery, and offering investment opportunities to individuals and institutions.
|
|
Explore Courses for B Com exam
|
|
Similar B Com Doubts
What do you mean by stock exchange ? What are its functions?
Question Description
What do you mean by stock exchange ? What are its functions? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What do you mean by stock exchange ? What are its functions? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What do you mean by stock exchange ? What are its functions?.
What do you mean by stock exchange ? What are its functions? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What do you mean by stock exchange ? What are its functions? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What do you mean by stock exchange ? What are its functions?.
Solutions for What do you mean by stock exchange ? What are its functions? in English & in Hindi are available as part of our courses for B Com.
Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free.
Here you can find the meaning of What do you mean by stock exchange ? What are its functions? defined & explained in the simplest way possible. Besides giving the explanation of
What do you mean by stock exchange ? What are its functions?, a detailed solution for What do you mean by stock exchange ? What are its functions? has been provided alongside types of What do you mean by stock exchange ? What are its functions? theory, EduRev gives you an
ample number of questions to practice What do you mean by stock exchange ? What are its functions? tests, examples and also practice B Com tests.
|
|
Explore Courses for B Com exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup