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 ________ and economic growth.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → capital formation
Option (1) price continuity — Incorrect. Price continuity comes from a certain degree of healthy speculation.
Option (2) wider share ownership — Incorrect. Wider share ownership is the aim of spreading of equity cult.
Option (3) safety of investment — Incorrect. Safety of investment comes from well-regulated dealings on the exchange.
Option (4) capital formation — Correct. When savings reach their most productive uses, new capital is built up in the economy. This leads to capital formation and economic growth.
NCERT (Pre-rationalised Edition): “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.” “5. Spreading of Equity Cult: The stock exchange can play a vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.” “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.” |