Functions of the stock exchange, Finance Basics

Functions of the Stock Exchange

The essential function of a stock exchange is the raising of funds for investment in long-term assets. Whereas this basic function is very significant and is the engine by with such stock exchanges are driven, there are other quite significant functions also.

1.The mobilization for investment of savings in productive enterprises like  an alternative to putting savings in bank deposits, purchase of actual estate and outright consumption.

2. The growth of related financial services sector as like insurance and provident fund and , pension schemes that nature the spirit of savings.

3. The check against flight of capital that takes position due to local inflation and currency depreciation.

4. Encouragement of the divorcement of the owners of capital from the managers of capital; a very important process because owners of capital may not necessarily have the expertise to manage capital investment efficiently.

5. Encouragement of higher standards of accounting, and public disclosure and resource management such in turn affords greater efficiency in the procedure of capital growth.

6. Facilitation of equity financing like opposed to debt financing. Debt financing has been the not doing of many enterprises in both developing and countries mainly in recessionary periods.

7. Development of access to finance for smaller and new companies. This is futuristic in mainly developing countries since venture capital is mostly occupied or an unfortunate situation.

8. Encouragement of public floatation of private companies that in turn permits greater growth and raise of the delivery of assets available for long term investment.

There are many other less common benefits that stock exchanges afford to. Individuals, corporate organizations, still the government. So now  an example could increase long term finance locally via issuing various varieties of bonds throughout the stock exchange and hence be less inclined to foreign borrowing.

Stock exchanges, particularly in rising countries have not usually played the full role in economic improvement.

Posted Date: 2/1/2013 12:46:04 AM | Location : United States







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