Why stock exchange is called as the ‘financial barometers’ and development indicators of national economy?
Answers
Answer:
It is quite common for a stock index or exchange to be used as a barometer for the national economy. iii) Consumer - Level Barometers. The stock exchange is not only used as a platform to carry business transactions but as the barometers that help in indicating the general conditions of the business atmosphere.
A well functioning securities market is conducive to sustained economic growth. There have been a number of studies, starting from World Bank and IMF to various scholars, which have established robust relationship not only one way, but also the both ways, between the development in the securities market and the economic growth.
The securities market fosters economic growth to the extent that it-
(a) augments the quantities of real savings and capital formation from any given level of national income,
(b) increases net capital inflow from abroad,
(c) raises the productivity of investment by improving allocation of investible funds, and
(d) reduces the cost of capital.
e)the securities market provides a bridge between ultimate savers and ultimate investors and creates the opportunity to put the savings of the cautious at the disposal of the enterprising, thus promising to raise the total level of investment and hence of growth.
f))
It is reasonable to expect savings and capital accumulation and formation to respond favourably to developments in securities market