Which of the following pairs of a stock exchange function and its meaning is correctly matched?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Providing liquidity and marketability – giving investors the chance to disinvest and reinvest
Option (1) Pricing of securities – ensuring that the investing public gets a safe and fair deal — Incorrect. A safe and fair deal for the public comes from safety of transaction. Pricing of securities means prices set by demand and supply.
Option (2) Providing liquidity and marketability – giving investors the chance to disinvest and reinvest — Correct. A stock exchange creates a continuous market. Investors can disinvest and reinvest, which gives liquidity and easy marketability to existing securities.
Option (3) Spreading of equity cult – channelising savings into their most productive investment avenues — Incorrect. Channelising savings into productive avenues is how the exchange contributes to economic growth. Spreading of equity cult means wider share ownership.
Option (4) Providing scope for speculation – providing important instant information to buyers and sellers — Incorrect. Instant information to buyers and sellers comes from pricing of securities. Speculation is allowed within the law to keep liquidity and price continuity.
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.” “4. Contributes to Economic Growth: A stock exchange is a market in which existing securities are resold or traded. Through this process of disinvestment and reinvestment savings get channelised into their most productive investment avenues. This leads to capital formation and economic growth.” |