Stock Exchange

A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.

The role of stock exchanhe, this may include the following:

• Raising capital for businesses.

• Mobilizing savings for investment.

• Facilitating company growth.

• Profit sharing.

• Corporate governance.

• Creating investment opportunities for small investors.

• Government capital-raising for development projects.

• Barometer of the economy.

There are 2 principal functions of a stock market:

1. Bring together buyers and sellers of a commodity (stocks and shares);

2. Raise funds for new ventures (Opportunity of the Government to borrow).

The gains to the economy come from:

1. an improved utilization of existing domestic savings and en­couraging new savings;

2. channeling these savings to where they can (hopefully) be most efficiently used;

3. attracting foreign savings, namely portfolio investment;

4. assisting in the privatization process;

5. providing a market for corporate control; i.e. an opportunity for inefficient firms to be taken over and run by more efficient managers.

To savers who wish to invest the advantages include:

1. enabling them to spread their risk over a number of invest­ments; the market allows portfolio preferences to be satisfied;

2. an opportunity to earn higher rates of return from equity in­vestment than available on alternative investment opportunities; an opportunity to provide some cover against inflation;

3. providing a liquid investment opportunity, with securities that can easily be traded in the market should cash be urgently needed;

4. for some the opportunity to gamble;

5. an opportunity to invest in imaginative types of financial securities.

For companies and others seeking funds, the advantages of a stock exchange listing include:

1. access to investment capital;

1. an opportunity to expand the size of the business through acqui­sition without losing control of the business;

2. an opportunity for fast-growing and young companies to obtain finance;

3. an opportunity to improve company financial gearing, and to be less dependent on bank finance;

4. the fact that the market attaches a price to risk and enables risk to be transferred;

5. an opportunity to become known to national and world investors.

A futures contract is a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future and at a market-determined price (the futures price).

In finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk.

Speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.

Option is a contract between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset (the underlying asset) on or before the option's expiration time, at an agreed price, the strike price.

A swap is a derivative in which two counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices.

A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets.