Question

What is meant by 'Stock Exchange'?

Explain briefly any three of its functions.

Answer 1

The stock exchange is an institution which provides a platform for buying and selling of existing securities.

Functions performed by a stock exchange are:

(i) Provides liquidity and marketability to existing securities The primary function of a stock exchange is to provide a ready and continuous market where existing securities can be bought and sold.

This provides both liquidity and cash marketability to already existing securities in the market.

(ii) Pricing of securities Share prices on a

stock exchange are determined by the forces of demand and supply. Stock-market indices like SENSEX, NSE, etc reflect market direction and indicate day-to-day fluctuations in share prices. Thus, both buyers and sellers can get constant information about price movements of shares 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. This ensures that the investment of public is safe and they will get a fair deal in the market.