Theory question 104
Stock ExchangeCommerce 2 (answer five questions)
(a) Describe the functions of the Stock Exchange.
(b) State the types of securities traded in the Stock Exchange.
Show the model answer
(a) Functions: provides a market for buying and selling existing securities; helps companies and government raise long-term capital; makes shares liquid – easily turned into cash; values securities and publishes prices (barometer of the economy); protects investors through rules and listing requirements; encourages saving and investment; channels funds to productive uses; facilitates privatisation and mergers.
(b) Securities: ordinary shares (equities); preference shares; debentures (company loan stock); government stocks/bonds (gilt-edged securities, development stocks); state/local government bonds; industrial loans; units of unit trusts; rights issues and bonus shares.
List several functions and explain each in a sentence.