Given below are two statements:
Assertion (A): A stock exchange provides important instant information to both buyers and sellers in the market.
Reason (R): A stock exchange is a mechanism of constant valuation through which the prices of securities are determined.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): A stock exchange provides important instant information to both buyers and sellers in the market. — True. Buyers and sellers on the exchange get instant information about prices.
Reason (R): A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. — True. Share prices are set by demand and supply. The exchange values securities all the time, so prices are always up to date.
Why R explains A?
The exchange values securities constantly, so a fresh price is always there. Because of this, buyers and sellers know at once what a security is worth. The constant valuation in R is the cause; the instant information in A is its result.
NCERT (Pre-rationalised Edition): “1. Providing Liquidity and Marketability to Existing Securities: The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold. It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy marketability to already existing securities in the market.” “2. Pricing of Securities: Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market.” |