Question

List the functions of a Stock Exchange and explain any two.

Answer 1

Functions of Stock exchange

1. Continuous market for securities

The Investors are able to invest in good securities and in case of any risk, it enables people to switch over from one security to another. So stock markets provides a ready and continuous opportunities for securities.

2. Evaluation of securities

It the stock exchange, the prices of securities clearly indicate the performance of the companies. It integrates the demand and supply of securities in an effective manner. It also clearly indicates the stability of companies. Thus, investors are in a better position to take stock of the position and invest according to their requirements.

3. Mobilizes savings

The savings of the public are mobilized through mutual funds, investments trusts and by various other securities. Even those who cannot afford to invest in huge amount of securities are provided opportunities by mutual funds and investment trusts.

4. Healthy speculation

The stock exchange encourages healthy speculation and provides opportunities to shrewd businessmen to speculate and reap rich profits from fluctuations in security prices. The price of security is based on supply and demand position. It creates a healthy trend in the market. Any artificial scarcity is prevented due to the rules and regulations of the market.

5. Mobility of funds

The stock exchange enables both the investors and the companies to sell or buy securities and thereby enable the availability of funds. By this, the money market also is strengthened as even short-term funds are available. The banks also provide funds for dealing in the stock exchanges.