STOCK MARKET

Stock Market

Stock Market

Introduction

The stock market is a tool used for pricing of stocks. Stock Markets play a very pivotal role in the current economic system. Based on the value of a stock exchange, one can assess the economic position of a company and map its position within the industry. The higher the stock index, the better is for the economy. The stock market is a source of money. Stock market is the meeting place of those who want to invest their in securities. The overall economic context, in addition to the stock market, acts as a famous trading center. In this paper, we will discuss the role and importance of Stock Markets in the Economy. We will also try to determine the effects of financial crisis on the stock market and its role.

Role of Stock Markets

Stock Markets provide a great platform for buyers and sellers to meet at a place and involve in buying and selling of stocks. Stock Market possesses all the characteristics of a market of general commodities. It determines the prices of stock market, which gives investors an indication about the financial position and performance of the company. In addition, stock market trading allows transfer of company shares and bonds to other investors. It may also be important to the commodity and foreign exchange market, which cannot be ignored. For every supporter of the west, the stock market has become very significant (Jensen & Bennington, 1970, Pp.: 469-482).

Stock Markets are divided into two types on the basis of their roles that are Primary Market and Secondary Market. In a Primary market, new securities in the form of shares and bonds are directly issued by the issuer, which is first authorized by the regulator of the stock market. The price of securities in this case, is established by the issuer that is the institution issuing shares or bonds on their own behalf. Issue and purchase of securities on the primary market is done through brokers or banks conducting brokerage activities. Primary Market performs following tasks:

1. Allocation of capital to the most efficient sectors of the economy,

2. Increase in the development potential of economic entities (Corporations)

3. Increased competition in the financial market

4. Development of security market

5. Better evaluation of an issuer carrying out the issue

The secondary market is a part of the financials market, devoted to the sale of securities that have already been issued in an initial public offering or private offering in Primary Market. The secondary market in general can refer to any flea market, where transactions produce all kinds of used goods, whether or not financial assets. Securities, whether debt or equity (bonds or shares), are issued by companies in the primary market through different channels (Jensen, 2004, Pp. 59-92). The secondary market begins its function from that time, responsible for the subsequent purchases of such securities among investors. It behaves as a resale market, responsible for providing liquidity to the securities. In the secondary market, the title of securities is bought and sold between individual ...