(a) Describe the functions of the Stock Exchange. (b) State the types of securities traded in the Stock Exchange.

Answer Details

(a) Functions of the Stock Exchange

1. Provides a ready market for securities: It is an organised market where existing shares, stocks and bonds can be bought and sold.
2. Provides liquidity to investors: It enables holders of securities to convert their investments into cash quickly by selling to other investors.
3. Aids capital formation: It channels the savings of the public into productive investment by making it easy to buy new securities.
4. Values securities and fixes prices: Through the forces of demand and supply, it determines and publishes the current prices of securities.
5. Protects investors: By regulating its members and dealings, it guards against fraud and ensures fair dealing.
6. Provides investment information: It supplies information on prices and performance of companies, guiding investors in their decisions and acting as a barometer of the economy.

It also helps government and companies to raise long-term capital.

(b) Types of securities traded in the Stock Exchange

• Ordinary shares (equities).
• Preference shares.
• Debentures.
• Government stocks and bonds (for example development stocks and treasury bonds).
• Industrial loans and corporate bonds.