Consider the following statements about the functions of a stock exchange:
(A) A stock exchange gives investors the chance to disinvest and reinvest in a continuous market.
(B) Share prices on a stock exchange are fixed by the Securities and Exchange Board of India.
(C) A stock exchange allows speculative activity within the provisions of law in a restricted and controlled manner.
(D) A stock exchange ensures safety of transaction because its dealings are defined by the rules of its brokers.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (C) only
(A) A stock exchange gives investors the chance to disinvest and reinvest in a continuous market. — Correct. The exchange creates a continuous market, so investors can disinvest and reinvest.
(B) Share prices on a stock exchange are fixed by the Securities and Exchange Board of India. — Incorrect. Share prices on a stock exchange are determined by the forces of demand and supply. SEBI regulates the market; it does not fix share prices.
(C) A stock exchange allows speculative activity within the provisions of law in a restricted and controlled manner. — Correct. The exchange allows speculation within the provisions of law, in a restricted and controlled manner.
(D) A stock exchange ensures safety of transaction because its dealings are defined by the rules of its brokers. — Incorrect. Its dealings are well defined according to the existing legal framework, and its membership is well regulated.
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.” “3. Safety of Transaction: The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal on the market.” “6. Providing Scope for Speculation: The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner. It is generally accepted that a certain degree of healthy speculation is necessary to ensure liquidity and price continuity in the stock market.” |