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Functions of the Securities Market: To Investors

FUNCTIONS OF THE SECURITIES MARKETS

The  securities  markets  perform  very  important  functions  that  benefit  the  economy, the corporations and the individual investors

To The Investor These Are Some Of The Benefits:

a) It enables investors to spread their risk through diversification. The existing of a stock market makes it possible for an investor to spread and diversify his/her risk by holding a well-diversified portfolio.

b) It provides a liquid investment opportunity. Liquidity is very important to  every  investor.  This  is  because  every  investor  wants  to  convert  his/her investment  quickly  into  cash  when  the  need  arises.  The  existing  of  stock  market makes it possible because any investor with a security that is traded  on  the  security  market  can  easily  dispose  of  such  asset  when  the  need  arises without having to lose large part of  the principal investment or having  to incur high commission.

To The Corporation And Other Investment Seekers, The Benefits Are:

a) Securities market (stock exchange) makes access to investment capital  possible.  Firms  in  need  of  investment  capital  can  raise  it  through  the  exchange.

b) It provides opportunity for fast growing and young companies to obtain  finance. Such companies can raise capital through the issue of shares (initial public offer).

c) It creates  an  opportunity  for  corporations  to  become  known  to national  and  international  investors.  Ashanti  Goldfields  Company  (AGC)  is listed on the New  York Stock Exchange. This has made it an international firm  making  it  possible  for  people  who  do  not  know  Ghana  to  know  and invest in AGC.

 

Other Functions Of The Stock Market Are:

a) It provides continuous market for the purchase and sale of securities.

b) It provides  a  mechanism  for  determining  a  fair  market  price  for securities traded on the exchange.

c) It imposes  some  standardization  regarding  the  release  of  financial information by companies whose securities are traded on the exchange. For example,  all  listed  companies  are  supposed  to  publish  their  audited  final accounts each year.

d) It attempts  to  protect  investors  who  maintain  account  at  member brokerage  firms.  It  does  this  by  regulating  trading  practices  and  imposing financial standards upon member firms.

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