Functions of Stock Exchanges



What are the various functions of stock exchange? The following are the various functions of stock exchange. – Acts/Serves as economic barometer: Stock …

source

Functions of Stock Exchanges

What are the various functions of stock exchange?

The following are the various functions of stock exchange.

- Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.
- Bank Lending facilitation: Banks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.
- Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)
- Deals/regulates company management:: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.
- Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.
- Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.
- Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.
- Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.
- Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.
- Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.
- Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.

Additional content on this topic can be found at http://www.eduxir.com/curriculum/cbse/class-xii/entrepreneurship/resource-mobilization/