What are the functions of a Stock Exchange?

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Explain any four functions of stock exchange.

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“In today’s commercial world, the Stock-Exchange performs many vital functions which leads the investors towards positive environment.’ Explain how by giving any four reasons.

Functions: The main functions performed by Stock Exchange are as follows:

(i) Providing Liquidity and Marketability to Existing Securities: Stock Exchange is a market place where previously issued securities are traded. Various types of securities are traded here on regular basis. Whenever required, investor can invest his money through this market into securities and can reconvert this investment into cash. Availability of ready market for sale and purchase of securities increase their marketability and enhance the liquidity in investment of money.

(ii) Pricing of Securities: A stock exchange provides platform to deal in securities. The forces of demand and supply work freely in the stock exchange. In this way, prices of securities are determined.

(iii) Safety of Transactions: Stock Exchanges are organised markets. They fully protect the interest of investors. Each stock exchange has its own laws and bye-laws. Each member of stock exchange has to follow them and any member found violating them, his membership is cancelled.

(iv) Contributes to Economic Growth: Stock Exchange provides liquidity to securities. This gives the investor a double benefit—first, the benefit of the change in the market price of securities can be taken advantage of, and secondly, in case of need for money they can be sold at the existing market price at any time. These advantages provided by the share market encourage the people to invest their money in securities. In this way, people's money gets invested in industries and economic development becomes possible.