Stock exchange is an entity that offers trading comforts for traders and stock brokers to trade stocks and other securities. Facilities are provided by stock exchange for the issue and redemption of financial securities and other financial instruments and payment of dividend and income. The securities are traded on exchange such as shares that are issued by companies, derivatives, unit trusts, pooled investment products, and bonds.
Role of Stock Exchange: It has many roles in the economy. Like:
- Raising Capital for business: Stock exchanges offer the facility to companies to raise capital for development by selling shares to the public who are interested to invest.
- Mobilizing savings for investment: It leads more rational allocation of resources when people draw their savings and invest in shares and these funds are mobilized and redirected to promote business activity with advantages for many economic sectors like commerce, agriculture, and industry, resulting in higher productivity and stronger economic growth levels of firms.
- Facilitating Company growth: Merger or Takeover bid through the stock market is most common way to develop a company by fusion or acquisition. Company acquisition is a chance to develop product lines and increase its market share or obtain other necessary business and increase distribution channels, hedge against volatility.
- Creating investment opportunity for small investors: Investing in shares is open to both small and large stock investors because a person purchases the number of shares as per financial capability. So Stock Exchange offers the opportunity to own shares of the same companies for small investors as large investors.