Functions of Stock Exchange and Role of Stock Exchange
Role, benefits and function of stock market are given in the diagram below.↓
Image credits © Manoj Patil.
How does the stock exchange work are given below: ↓
- Continuous and Regular Market
- Evaluation of Securities
- Promotes Capital Formation
- Safety and Security in Dealings
- Stimulates Industrial Investment
- Encourages Public Borrowings
- Facilitates Speculation
- Facilitates Bank Lending
- Regulates Company Management
- Serves as an Economic Barometer
- Generates Employment
- Acts as Clearing House of Commercial Information
Importance, advantages, functions of stock exchange market are discussed in brief: ↓
1. Continuous and Regular Market
The stock market is a continuous market; it facilitates sale and purchase of various types of securities.
2. Evaluation of Securities
Stock exchange provides liquidity and marketability to the securities. The investors at any time can know the real value to their holdings.
3. Promotes Capital Formation
Stock exchange promotes capital formation and accelerates the economic development by channelizing savings into productive channels.
4. Safety and Security in Dealings
In the stock exchange, all transactions take place as per rules and regulation. It provides security in every transaction.
5. Stimulates Industrial Investment
Stock exchange helps to divert the funds to companies and provides resources to industrial units, by helping them to seek investment and funds.
6. Encourages Public Borrowings
Stock exchange enables the government to sell their securities and encourages the public to spend their money on government securities along with private sector securities.
7. Facilitates Speculation
In the stock exchange, healthy speculation is carried out, and the speculators get an opportunity to maximize profit.
8. Facilitates Bank Lending
Stock exchange provides liquidity to securities. The banks can easily offer loans against securities.
9. Regulates Company Management
The company whose shares are listed in the stock exchange have to follow the defined rules and regulations.
10. Serves as an Economic Barometer
Stock exchange is highly sensitive and gets affected by economic and political events in the country. It shows the economic situations of the company and national economy. Hence it serves as an economic barometer.
11. Generates Employment
The stock exchange provides various employment opportunities to the number of broker and sub brokers.
12. Acts as Clearing House of Commercial Information
Stock exchange acts as a clearing house of commercial information through daily quotations, weekly and monthly reports. It also provides booklets and statements issued from time to time.