The stock exchange markets appear in news in almost every day and we often hear stock exchange going up or down. Stock exchange basically acts on two levels; as a primary market and as a secondary market economy. Stock Exchange as a primary market and thus it will liaise with banks and businesses that are looking to raise amounts of capital by selling shares. Many of the stock exchange markets work as a secondary market. People who buy shares will do so because of a variety of reasons such as; to see the price of the shares rise or to secure dividends. For instance; if people are willing to sell shares, then it would be very inconvenient for the particular business to take the shares back and sell them to someone else. The stock exchange also acts as a market that puts people who want to sell shares in touch with those seeking to buy.
The stock exchange have many roles in the economy which are as follows:
Capital raising for businesses: Help companies in raising capital for expansion through the selling of shares to the investing public.
Helps in the growth of a company: Acquisition is an opportunity for many companies to expand product lines, acquire other necessary business assets, or increase distribution channels and market share. One of the simplest ways for a company to grow is by a merger agreement or a takeover bid through the stock market.
Mobilization of savings for investment: When individuals draw their savings to invest in shares, it results to the allocation of resources. In this way, the funds that were idle with the banks are now mobilized and then redirected to promote businesses along with benefits to several economic sectors such as commerce and industry, agriculture, resulting in higher productivity levels of firms and stronger economic growth.
Corporate governance: With a varied and wide scope of owners, companies generally improve on their management standards and efficiency in order to be able to satisfy the demands of these shareholders.
Profit sharing: Both professional stock investors or casual, will share in the wealth of profitable businesses through stock price and dividends.