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Resource Mobilization — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipResource Mobilization5 Marks
Question
Explain the functions of stock exchange.
Give some value points to it.
✓

Answer

Stock exchange performs a number of functions in respect of marketability of different types of securities for investors and borrowing companies. It's important functions are:
  1. Continuous and ready market for securities:
  1. Stock exchContinuous ange provides a central market for purchase and sale of securities.
  2. It provides ready and continuous outlet for buying and selling of securities.
  3. It facilitates and helps all buyers to buy and sell securities as and when they want.
  1. Facilitates evaluation of securities:
  1. It is useful for the correct evaluation of industrial securities.
  2. It publishes price quotation of the shares of the companies that have been listed with them after thorough analysis of demand and supply position.
  3. This enables investors to know the true worth of their holdings at any time.
  1. Checks on brokers:
  1. It checks and controls the activities of brokers and protect the investors from being received.
  2. While dealing, if any broker is EL found indulging in malpractices as overcharging or giving wrong information, his/her licence may be cancelled.
  1. Provides safety and security in dealings:
  1. All activities of the stock exchange are controlled by the provisions of the Securities Control (Regulation) PEL Act and all this creates confidence in the minds of investors.
  2. Each and every dealings and transactions are conducted as per well-defined rules and regulations, fraudulent practices stands checked effectively ensuring safety, security and justice in dealings.
  1. Regulates company management:
  1. The companies which are listed also have to operate within the strict rules and regulations.
  2. This ensures safety of dealing through stock exchange.
  3. All of them have to work under the vigilance of stock exchange authorities.
  1. Intensifying capital formation and promoting the habit of saving and investment:
  1. The stock market offers attractive opportunities of investment in various securities.
  2. It encourages people to save more and invest in securities of corporate sector rather than investing in unproductive assets such as gold, silver, etc.
  3. It also creates a habit of risk taking among the investing class by converting their savings into profitable and help them for safe investments.
  1. Facilitates raising of new capital: It facilitates an entrepreneur of existing companies for the need for more capital for further development, organisation or expansion and help them to meet the need.
  2. Facilitates public borrowing: It serves as a platform for marketing government securities. It enables government to raise public debt easily and quickly.
  3. Facilitates healthy speculation: To ensure liquidity and demand of supply of securities, the stock exchange permits healthy speculation of securities and always keeps the exchange active.
  4. Serves as economic barometer: Stock exchange indicates the state of health of companies and the national economy. It acts as a barometer of the economic situation/conditions and is thus referred as pulse of economy or economic mirror.
  5. Facilitates bank lending: Banks easily know the prices of quoted securities. They offer loans to customers against corporate securities. This gives convenience to the owners of securities.
Value Points:
  1. Helpfulness: The stock market helps to value the securities on the basis of demand and supply factors.
  2. Quest for knowledge: The valuation of securities is useful for investors, government and creditors.
  1. The investors know the value of their investment.
  2. The creditors know the value of credit worthiness.
  3. Government knows to impose taxes on value of securities.
  1. Truthfulness and equality: Only STRE listed companies can operate in stock exchange.
  1. To protect national property and economic growth: In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.
  2. Readiness to cooperate: Readiness to cooperate and ensures safety of dealing through stock exchange.
  3. Encourage and promotes the habit of savings and honest investment: It offers attractive opportunities of investment in various securities. It encourages people to save more and invest in securities of corporate sector rather than investing in unproductive assets such as gold, silver, etc.
  4. Better transparency, genuine settlement cycle, honest transaction, etc.

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