A stock market is a market for the trading of companies stocks and derivatives but at an agreed price between the buyer and the seller. The world stock market has been estimated to be about US $36.6 trillion during 2008 and the derivatives market had been estimated to be $791 trillion on face value which 11 times the size of the economy of the world. The derivatives market is on face value so they can be compared with stock markets or fixed income securities which are on actual value rather than face value. The stock market is one of the most important sources of money for companies (Preda,2009).
Stock exchange is an organized marketplace where brokers and dealers meet to buy and sell stocks of publicly traded companies on behalf of investors. It is a secondary market where already issued securities are bought and sold. The trading floor shows all available buyers and sellers during specified market timings. Buy and sell orders execution is done through matching bids and offers like any other market place. Demand and supply determines the price of securities. Execution at a unified trading floor generates a large volume that ensures liquidity and price efficiency in the market.
Stock markets can play a crucial role in mobilizing domestic and foreign resources, and channeling them to the most productive medium and long-term uses. The level of capital market development is thus, an important determinant of a country’s level of savings, efficiency of investment and ultimately its rate of economic growth. Since these funds are not intermediated, resource allocation should be more efficient (Hamilton, 1922).
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