To know the answer to this, first you should know what is Stock exchange itself.
Well a stock exchange is a market place where securities like stocks and bonds are brought and sold.
It allows companies to increase their capital and also help investors to make informed decisions using Real-time pricing information.
Yes, exchanges are generally a physical location or done on trading floors, the imageries of which most people are familiar with, but it can also be done on an electronic trading platform.
Exchanges contribute a lot to the economy by acting as an agent to facilitate trade and disseminating information.
Some noticeable ways by which exchange contribute to the economy are listed below –
Raising Capital – By issuing new shares and also through Initial Public Offerings ,companies make space for the capital to rise which in turn help them to fund operations and expand projects .
By doing so, the company gets provided with avenues and grows increasingly.
Increases economical efficiency –
Stock Exchanges facilitate economical efficiency by allocating capitals .It provides an avenue for groups and individuals to invest their cash rather than saving it . This indicates that the capital which would otherwise be sitting in a person’s bank account will be utilized towards economic benefit.
It offers liquidity and encourages an efficient market by allowing people who are willing to invest to actively decide the value of the companies through demand and supply.
Corporate Governance –
Companies that are publicly listed on a stock exchange are bound to regularly and publicly report their financial statement and earnings to their shareholders.
As the actions of such companies are constantly under public scrutinity,they directly affect the company value.
Public reporting ensures that the management makes decisions that are benefitting to both the goals of the company and its share holders, and make them act efficiently.
REQUIREMENTS –
All the companies wishing to go public must satisfy the requirements outlined by the securities commissions for their respective jurisdiction and also the requirements of the stock exchange they want to get listed on.
THE REUIREMENTS ARE NOT AT ALL EXHAUSTING WHICH ARE TO BE LISTED IN EACH TYPE –
When company issues new securities that did not previously existed then it is issuing them to the primary market .The companies offer security to investors encouraging them to raise capitals and get listed on the stock exchange.
After undergoing an IPO, the company no longer becomes involved in any of the exchange trades ,the stock exchange facilities trade between buyers and sellers in the secondary market.
Taking in note the whole discussion, now you know what is stock exchange and how it works . So, it is a recommendation to invest in stock market a part of your savings so that you can earn of it.
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