Role of Stock Exchange in Economic Development

The Roles of Stock Exchange in Economic Development are as follow:

1. Raising Capital for Businesses

The Stock Exchange offers companies along with the facility to increase capital for expansion by the selling shares to the investing public.

2. Mobilizing Savings for Investment

While people draw their invest and savings in shares, it leads to a more rational distribution of resources since funds that could have been consumed, or remained in idle deposits through banks are mobilized and redirected to promote industry and commerce.

3. Redistribution of Wealth

Through giving a wide spectrum of people a chance to buy shares and consequently become part-owners of profitable enterprises, the stock market facilitates to decrease large income inequalities because many people obtain a chance to share in the profits of business such were set up via other people.

4. Improving Corporate Governance

Through having a wide and varied scope of owners, companies commonly tend to develop on their management standards and efficiency in sequence to satisfy the demands of these shareholder. It is evident that usually, public companies tend to contain better management records rather than private companies.

5. Creates Investment Opportunities for Small investors

As opposed to other business such requires huge capital outlay, investing in shares is release to both the small and large investors since a person buys the number of shares they are able to afford. Consequently the Stock Exchange offers an extra source of income to small savers.

6. Government Raises Capital for Development Projects

The Government and even if local authorities same to municipalities may decide to borrow money in sequence to finance huge infrastructural projects as like sewerage and housing estates or water treatment works with selling another category of shares identified as Bonds.  These bonds can be increased through the Stock Exchange whereby members of the public buy them. While the Government or Municipal Council obtains this alternative source of funds, it no longer has required overtaxing the people in sequence to finance progress.

7. Barometer of the Economy

On the Stock Exchange, share prices increase and fall depending there largely, on market forces. Share prices tend to increase or stay stable while the economy companies and Barometer in commonly show symbols of stability. Consequently their movement of share prices can be an indicator of the usual trend in the economy.