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SUMMARY
I- Meaning of Stock Exchange

1. Definition
2. Example of stock exchange
II- Features and Functions of Stock Exchange

1. Features of Stock Exchange
2. Functions of Stock Exchange
III- The purpose and importance of the Stock Exchange

1. The purpose of the Stock Exchange
2. The importance of the Stock Exchange
IV- Pros and cons of stock exchanges

1. Pros of stock Exchange
2. cons of stock Exchange
CONCLUSION
1
I. Meaning of stock exchange
1. Definition
A stock exchange is a Marketplace where Securities, such as stocks and bonds,
are bought and sold. Bonds are typically traded Over-the-Counter (OTC), but
some corporate bonds can be traded on stock exchanges.
2. Examples of stock exchange

There are numerous stock exchanges around the world. Some of the largest
exchanges are the New York Stock Exchange (NYSE), the NASDAQ, and the
Tokyo Stock Exchange (JPX). Other well-known stock exchanges include the
London Stock Exchange (LSE), the Shanghai Stock Exchange (SSE) and the
Bombay Stock Exchange (BSE).
II. Features and Functions of Stock Exchange
1. Features of Stock Exchange

Features are :
 market for securities : It is a wholesome market where securities of
government, corporate companies, semi-government companies are bought and
sold.
 Second-hand securities : It associates with bonds, shares that have
already been announced by the company once previously.
 Regulate trade in securities : The exchange does not sell and buy bonds
and shares on its own account. The broker or exchange members do the trade on
the company’s behalf.
 Dealings only in registered securities : Only listed securities recorded in
the exchange office can be traded.
 Transaction : Only through authorised brokers and members the
transaction for securities can be made.
 Recognition : It requires to be recognised by the central government.
 Measuring device : It develops and indicates the growth and security of a
business in the index of a stock exchange.
 Operates as per rules : All the security dealings at the stock exchange
are controlled by exchange rules and regulations and SEBI guidelines.
2
2. Functions of Stock Exchange
Following are some of the most important functions that are performed by stock
exchange:
 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.
 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.
 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.
 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.
 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.
 Offers scope for speculation: By permitting healthy speculation of the
traded securities, the stock exchange ensures demand and supply of securities
and liquidity.
 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.
 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.
 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.
3
III. The Purpose and Importance of the Stock Exchange
1. The purpose of the Stock Exchange

A stock exchange brings companies and investors together. A stock exchange
helps companies raise capital or money by issuing equity shares to be sold to
investors. The companies invest those funds back into their business, and
investors, ideally, profit from their investment in those companies.
2. The importance of the Stock Exchange

Stock markets help companies to trade publicly in order to raise capital. It acts
as a platform for sale and purchase of securities.
IV. Pros and cons of stock exchange
1. Pros of stock Exchange

Pros are :
 For a company, being listed on a stock exchange comes with a certain
level of prestige. This is particularly true for older exchanges, such as
Amsterdam, London and New York. Being listed on an exchange also means
investors can buy shares in the company, which helps the company expand by
raising funds.
 By trading on a stock exchange, it is likely traders will be at less risk of

counterparty default. This is due to the high levels of regulation on stock
exchanges, which is something that OTC methods of trading lack.
 Additionally, online brokerage firms have made it even easier for traders
to access stock exchanges and gain the opportunity to profit from any short-term
market movements.
4
2. Cons of stock exchange
Cons are :
 For a company, listing on a stock exchange can be time consuming and
expensive. And once the company has listed, it will have to consider its
responsibility to shareholders, who now have a stake in the company.
 Trading on a stock exchange does not guarantee stability. Stock markets

are susceptible to market volatility, which means that there can be dramatic
swings in the price of stock, usually in response to political and economic events
around the world.
 Stock exchanges can also experience crashes. Although they are rare,
stock market crashes can significantly reduce the value of stocks and lead to
economic depressions that last for years.
 Traders and investors can manage their exposure to stock market volatility
by implementing a risk management strategy.
5
CONCLUSION
Stock exchanges have played a great role in the investment process in developed
countries such as the United States, the United Kingdom, Japan, and so many
others and have contributed to their development. Though the stock exchange
market is necessary to the economic growth of Rwanda, its implementation will
face many challenges that need to be addressed such as a low savings rate, a
complex tax regime, a small economy and the structure of companies that are
family owned and the absence of financial intermediaries, financial advisory
services, investment banks.
6
WEBOGRAPHY
https://www.investopedia.com/articles/basics/
04/092404.asp#:~:text=A%20stock%20exchange%20brings
%20companies,their%20investment%20in%20those
%20companies.
https://en.wikipedia.org/wiki/Stock_exchange
https://www.britannica.com/money/stock-exchange-finance
https://corporatefinanceinstitute.com/resources/equities/stock-
exchange/

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SUMMARY

I- Meaning of Stock Exchange

II- Features and Functions of Stock Exchange

III- The purpose and importance of the Stock Exchange

IV- Pros and cons of stock exchanges

2. Examples of stock exchange

II. Features and Functions of Stock Exchange

1. Features of Stock Exchange

1. The purpose of the Stock Exchange

2. The importance of the Stock Exchange

IV. Pros and cons of stock exchange

1. Pros of stock Exchange

 By trading on a stock exchange, it is likely traders will be at less risk of

 Trading on a stock exchange does not guarantee stability. Stock markets

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