Function of Stock Market

1. Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country. Every
major change in country and economy is reflected in the prices of shares. The rise or fall in the
share prices indicates the boom or recession cycle of the economy. Stock exchange is also known
as a pulse of economy or economic mirror which reflects the economic conditions of a country.

2. Safety of Transactions:

In stock market only the listed securities are traded and stock exchange authorities
include the companies names in the trade list only after verifying the soundness of
company. The companies which are listed they also have to operate within the strict
rules and regulations. This ensures safety of dealing through stock exchange.

3. Channel for Investment

A stock exchange provides a channel for investment. The day to day information
given by the stock exchange helps the investors.

4. Determination of Prices

Stock exchange provides ready and continuous market. This feature helps to
determine the prices of various securities. Further the day to day prices of shares
and securities are published in newspaper and also brought to the notice of the

people through different media. This also helps the people to determine the price
very quickly.

5. Equalization of prices of Securities

Stock exchange helps to equalize the prices of securities in different stock market. If
shares of a company being sold for higher prices in a stock Exchange, the dealers
can purchase shares from the other stock exchange and sell the shares till the
prices are normalized.

6. Formation of Capital

A stock exchange induces people to save their earnings. Stock exchange facilitates
allocation of investors fund to profitable channels..

7. Mobilization of Savings

A stock exchange mobilizes the small savings of the people. The stock market offers
attractive opportunities of investment in various securities. These attractive
opportunities encourage people to save more and invest in securities of corporate
sector rather than investing in unproductive assets such as Gold, Silver etc.

8. Helping Government to rise the fund

Stock exchange helps the government to raise the funds from the investors through
the issue of bonds.

9.

Contributes to Economic Growth:

In stock exchange securities of various companies are bought and sold. This process of
disinvestment and reinvestment helps to invest in most productive investment proposal and this
leads to capital formation and economic growth.
10. Scope for Speculation:

To ensure liquidity and demand of supply of securities the stock exchange permits
healthy speculation of securities.

How interest rates effect the stock market?

A rise in the interest rate in the economy will shifts the demand curves for most stocks to
the left.
Most of the significant stock market declines occurred when interest rates increased
substantially.
Bonds are better investment options: high interest rates, price of bond decline.