Functions of Stock Exchanges

Functions of Stock Exchanges

1. providing a market for the purchase and sale of shares in public limited companies and sale of bonds and other securities for the government and local authority.

   • This helps both public limited companies and the national and local government authorities to raise finance, since buyers of shares and bonds know that the shares can be sold further, at higher price

2. enabling companies grow externally by merging or taking over another company

3. mobilising saving for investment

   • Savings are channelled towards firms and governments which can use them to finance projects

4. influencing the use of savings

   • Demand for shares in successful companies is higher than for those in the firms, which are seen to be struggling. This makes it easier for successful firms to sell their shares and gain a high price for them. Consequently, this makes it easier for them to raise finance and expand.

5. protecting those who buy shares

   • Any company which wants to be quoted on the stock exchange has to meet requirements such as publishing a range of information for prospective share buyer

6. providing an indication of economic performance

   • Share prices tend to rise when the economy is performing well and expected to continue to do well. (Bearish/Bullish)