(a) What is a stock exchange market. (b) Explain six functions of the stock exchange market

Answer Details

(a) What is a stock exchange market?

A stock exchange is an organised and regulated market where existing (second-hand) stocks, shares, bonds and other securities of public limited companies and government are bought and sold through licensed dealers (brokers and jobbers). The Nigerian Exchange is an example.

(b) Six functions of the stock exchange market

• Provides a ready market for securities: it enables holders of shares and stocks to sell them and buyers to acquire them easily, giving liquidity to investments.
• Mobilises capital for industry and government: it channels the public's savings into productive investment by making it easy for companies and government to raise long-term capital.
• Determines and publishes prices of securities: the forces of demand and supply on the exchange fix fair prices, which are quoted for the information of the public.
• Protects investors: it enforces strict rules on listed companies and dealers, ensuring honesty and that only sound securities are traded.
• Acts as an economic barometer: movements in share prices reflect the state of business and the economy, guiding investors and government.
• Encourages savings and investment: by offering a safe and profitable outlet, it encourages members of the public to save and invest.

Other functions include valuing securities for use as collateral and aiding the government's implementation of economic and privatisation policies.