Identify, which of the following is not a function of Stock Exchange?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Inhibiting scope for speculation

Option (1) Pricing of securities — A function of the stock exchange (Incorrect). Prices are set by the demand for and supply of each security, so the market gives a fair value of shares.
Option (2) Spreading of equity cult — A function of the stock exchange (Incorrect). By regulating new issues and teaching the public about investment, it spreads share ownership to more people.
Option (3) Inhibiting scope for speculation — Not a function of the stock exchange (Correct). The function is providing scope for speculation, within the limits of the law. Some healthy speculation keeps the market liquid and prices continuous. The exchange allows it; it does not block it.
Option (4) Contributes to economic growth — A function of the stock exchange (Incorrect). Savings move through it into the most productive uses, which leads to capital formation and growth.

Note 1: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below.

NCERT (Pre-rationalised Edition): “2. Pricing of Securities: … A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. …”

“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.”

“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.”

Note 2: The same/similar question has been asked in different years by NTA as per the details given below: