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1. A new issue is a stock or bond that is being sold to investors for the first time. ... The market that deals with these new issues is called the new issue market, as opposed to the secondary market that deals with existing shares and bonds.
The Indian capital market, like the money market, is known for its dichotomy. It consists of an organized sector and an unorganized sector. In the organised sector of the market, the demand for capital comes mostly from corporates, government and semi-government organizations.
The capital market structure is a layer of the financial system. ... While the money market deals with short-term financing and its counterpart capital markets with the financing of long-term in nature. The primary aim of the capital market is to channelize those who have savings to those who need such savings.
2. A stock exchange is a marketplace, where financial securities issued by companies are bought and sold. They are part of the broader capital market ecosystem. Securities issued by companies, such as shares and bonds, are traded on the stock exchanges, after they have been issued in the primary market.
Following are some of the most important functions that are performed by stock exchange:
1. Role of an Economic Barometer: Stock exchange serves as an economic barometer that is indicative of the state of the economy. It records all the major and minor changes in the share prices. It is rightly said to be the pulse of the economy, which reflects the state of the economy.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply and demand. The securities offered by companies that are profitable and growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors and government in performing their respective functions.
3. Transactional Safety: Transactional safety is ensured as the securities that are traded in the stock exchange are listed, and the listing of securities is done after verifying the company’s position. All companies listed have to adhere to the rules and regulations as laid out by the governing body.
4. Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the various companies. This process of trading involves continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.
5. Making the public aware of equity investment: Stock exchange helps in providing information about investing in equity markets and by rolling out new issues to encourage people to invest in securities.
6. Offers scope for speculation: By permitting healthy speculation of the traded securities, the stock exchange ensures demand and supply of securities and liquidity.
7. Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities. This gives investors the confidence that the existing investments can be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.
8. Better Capital Allocation: Profit-making companies will have their shares traded actively, and so such companies are able to raise fresh capital from the equity market. Stock market helps in better allocation of capital for the investors so that maximum profit can be earned.
9. Encourages investment and savings: Stock market serves as an important source of investment in various securities which offer greater returns. Investing in the stock market makes for a better investment option than gold and silver.
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