The Role of Stock Exchanges

    Those who have no money have the problem of earning money. Those who have money have the problem of earning more profits with their money. To put it in financial terms, they have the problems of investment. The moneyed individuals (no such term) are not necessarily the best investors. The fear of incurring losses always grips the minds of the rich. Nevertheless, the craze for increasing wealth seizes the minds of the rich people

    Stock Exchange is the connecting bridge between the investors and the capital market-for the companies planning business expansion to increase profits. The work of the broker is not to function in a haphazard manner. He must plan for each investor, depending upon his needs and the amount of investment. He has to create the suitable portfolio, to hit the financial goals of the investor. He has to work-in tandem with the rules and regulations of the exchange, and proves worthy of the trust reposed on him by the management of the establishment on the one hand, and that of the investor on the other.

    Most exchanges have a physical location (the necessity for this type of arrangement is waning in this internet era), where dealers and brokers meet to finalize orders from individual and institutional investors to buy and sell securities. The volume of literature on shares that you find in the market is the direct outcome of what transpires within the exchange. Prices of shares are raised, lowered, discovered and rediscovered here on moment to moment to basis. The story within may not be the true merit of the share, without. Since money transfers are done from one source to the other on the basis of such transactions, the importance of exchanges can not be minimized.

    Name a financial service and you have it, with the framework of rules and regulations of the Stock exchange. It is also referred to as he Corporate Debt or Capital Market.

    Three broad categories of the financial services provided at the Exchanges are:

    The Public Debt Market: This is the market for government securities (also known as gilt-edged securities). These are fixed interest bearing and dated securities. This market is controlled by the Reserve Bank of India and Bankers to the Government.

    PSU Bond Market: deals with bonds floated by Public Sector units, Nationalized Banks and financial institutions to raise Tier II capital. Debentures floated by Corporate also come under his category.

    The Equity Market for floating of equity or preference share capital by corporate:

    Once the investor buys the shares, they can not be en-cashed just as you do in banks for fixed deposits, but through the exchange, you can sell or purchase them. The investments, from this genre have liquidity. The profit (may be loss as well) earned on the shares is disbursed to the investor as dividends, bonus shares etc. The prime goal of any financial management is to increase the shareholder’s wealth.

    The role of the exchanges is to look after both the Primary Market and the secondary Market. The former deals with new public issues of all categories of securities, bonds and equity/preference shares. The secondary market deals with the day to day buying and selling of securities of all types. Without being listed, one can not carry out transactions relating to buying and selling of shares.

    If there is one institution that is commonly feared most by the Reserve Bank and the Finance Ministry of a country, it is the Stock Exchange. The goings on within it and its role is the concern of these institutions.

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