UNIT -7
STOCK EXCHANGES
Figure 7.1 The Process of Purchase and Sale Sercurities in the Stock Exchange
7.2 WHAT IS A STOCK EXCHANGES ? :-
→ We can describe that stock exchange as a market or a place where different types of securities are bought and sold.
→ It is not only deals in shares and debentures issued by control, state ro local goverment.
• Characteristics of Stock Exchange :-
(1) Stock exchange is an organized market.
(2) In a stock exchange, transactions take place between members or their authorised agents an behalf of the investors.
(3) In a stock exchange all transactions are regulated by the rules and bye laws of the concerned stock exchange.
7.3 FUCNTIONS OF STOCK EXCHANGES :-
→ These fucntions may be enumerated as
(a) Primary functions (b) Secondary fucntions.
• Primary Functions :-
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(1) Marketability and price continuity
(2) Mobilising surplus savings.
(3) Barometer of economic and business conditions.
(4) Mobility of capital
(5) contribution to captial formation.
(6) Shock absorber
(7) Shifting process
(8) Facilitates resources alloction.
• Secondary Functions :-
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(1) Safety of investmetn and equity of dealings.
(2) Easy liquidty.
(3) Accurate and continuous report regarding sales.
(4) Full information regarding listed companies.
(5) Helpful in re-investment decision.
(6) Safeguards to investors.
7.7 LISTING OF SECURITIES ON A STOCK EXCHANGES :-
→ Listing implies that the securities have met the satisfaction of stock exchange authorities, in respect of certain prescribed standards of legality, security and work-manship.
• Advantages of Listing :-
→ It provides a continous market for securities.
→ It enhances the prestige of the company.
→ It provides an indirect chek against manipulaion of prices by the management.
7.9 FACTORS AFFECTING PRICES IN A STOCK EXCHANGES :-
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(1) Interest rate.
(2) Activites of the financaial instituations.
(3) Performace of a company.
(4) Business cycle
(5) Change in Board of Directors.
(6) Sympathetic fluctuation.
(7) Political events
(8) Changes in goverment policy.
7.10 ADVANTAGES AND SHORT COMINGS :-
• Advantages :-
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(1) From the companies 'Point of view':-
(a) Increase in the credit and goodwill of the company.
(b) Extensive markets.
(c) Increase in the value of securities.
(d) Knowledge about investment to the company.
(2) From the inventors 'Point of view' :-
(a) Facility of investment.
(b) Protection of investor's interest
(c) Publication of quotations
(d) High collateral value.
(3) From the point of view of society as a whole :-
(a) Facilitates capital formation
(b) Promotes industrial growth.
(c) Proper use of capital
(d) Reduces fluctuation of security prices.
(e) Facilitates goverment borrowing.
