QS Study

Functions of Stock Exchange

Stock exchange provides the lifeblood of the companies. It is a key economic development issue. To form capital and business sectors to flourish, stock exchange performs many functions. The functions of stock exchange are as follows:

Capital formation: Stock exchange forms required capital for the companies from an individual investment. Capital formation is a vital duty to perform to establish a company. A stock exchange accelerates the industrial growth of a country.

Supplying long-term finance: Stock exchange supplies long-term finance for the companies. Generally, commercial banks and other financial institutes supply short-term finance but for companies, long-term finance is very much required.

Accelerating capital flow: Stock exchange creates a dynamic situation for capital flow. It gives the opportunities to invest in right sectors to the investors so that the capital flows in the right direction.

Inspiring Saving: Stock exchange inspires individuals to forgo current consumption and save their income by creating profitable investment opportunity by which they can gain more to lead a comfortable life.

Rapid industrialization: Stock exchange helps rapid industrialization. The main problem of industrialization is to raise capital for it and stock exchange carries out this duty efficiently. By collecting individual saving, stock exchange let them go to the industrial sectors thus develop the industries rapidly in a country.

Publications: It is an important function of a stock exchange to publish the daily information about the transaction and financial conditions of companies. Stock exchange performs this task by printing or online. From these publications, one can easily get the necessary information for investors.

Protecting investors: Stock exchange takes all the necessary steps to protect the interest of the investors. Through its rules and regulations, a stock exchange does these duties. If any fraudulence occurs in the stock market, the stock exchange takes steps to resolve the problem.

Employment generation: By forming capital, stock exchange creates a great opportunity for employment. Stock exchange helps people to establish a company and thus the more scope of employment is made.

Enlistment: Stock exchange enlists the interested companies to deal with it. Without enlistment, a company cannot transact in a stock exchange.

Ready market: Stock exchange is a secondary market. Any listed company can transact here as product market. Stock exchange provides an open facility for both the investors and the companies to transact here. So, it is a ready market for other product’s market.

Mobility of capital: Stock exchange ensures the mobility of capital. It collects songs of households and sends them to the companies.

Bank liquidity: It also helps banks to maintain liquidity. Because of easy of collecting money from the stock exchange, a bank can retrieve its investment from the stock exchange. By this means a bank easily maintain liquidity.

Attracting foreign investors: Stock exchange through lucrative investment opportunity attracts the foreign investment that is very much required for economic development for a country.

Clearing functions: Stock exchange works as a clearinghouse for the companies in case of buying and selling securities.

Supplying information: Stock exchange supply necessary information to both investors and companies. One can easily get the information based on that he/she can take a decision about the investment.

Rating: Rating is an important function of a stock exchange. It orders the companies trading in it based on their performance. Investors can easily select investment opportunity from the rating list.

So, through the above functions, stock exchange helps both investors and companies. Thus accelerates the economy of a country