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The Stock Exchange - Functions of Nairobi Stock Exchange


Date Posted: 4/16/2012 7:05:46 AM

Posted By: sashoo  Membership Level: Silver  Total Points: 382

The Stock Exchange may be defined as an organized market where stock and shares are issued, bought and sold through the services of stockbrokers or dealers. It is, therefore, a part of the capital market.

The stock market consists of those institutions dealing in long-term funds, and these include the Stock Exchange. The Stock Exchange deals with new issues and second-hand shares. The second-hand market is always extraordinarily large than the new issue market. The shares are much more liquid, and as such they are much more attractive to invest in. This is especially so if they can correctly be predicted that they can be readily resold for cash at a later date.

The Stock Exchange provides the market for such a resale where second-hand shares may be bought or sold. The company issuing the shares has to make prior arrangements for their shares to be traded.

1. It enables mobilization of savings for investment in productive enterprises as an alternative in putting savings in bank deposits, real-estate investment or outright consumption.

2. It gives room to the growth of related financial services sector e.g. insurance pension schemes, which nurture the spirit of savings.

3. It makes it easy to check against the flight of capital that occurs due to local inflation and currency depreciation.

4. It permits the owners of capital to “divorce” from managing their capital. This is a very crucial process because the owners of capital may not necessarily have the expertise to manage the capital investment efficiently.

5. It encourages high standards of accounting and management of resources. It also allows public disclosure that gives effective efficiency in the capital growth process.

6. It facilitates equity financing. Equity financing is preferred to debt financing. Most countries, both developed and undeveloped, have been trying to do away with debt financing

- especially during recessions.

7. It enhances improved access to finance both to new and small companies, which might otherwise find it hard to access finance.

8. It enables futuristic funding in most of the developing countries, where venture capital in mostly unavailable.

9. It encourages public flotation of private companies, which in turn allows greater growth. This is an asset that is available for long term investments.

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