Stock Exchange refers to a market where buying and selling of the existing securities take place.
The main functions of a stock exchange are:
(i) To provide liquidity and marketability: A stock exchange provides a ready platform for trading in existing securities-it provides a continuous market for the sale and purchase of securities. Through a stock exchange, securities can be easily converted into cash as and when required.
(ii) To determine prices: A stock exchange helps in establishing the price of the monetary assets that are traded in the market. Similar to the case of a commodity, the price of a financial asset is established through the forces of demand and supply for funds. In this regard, financial markets provide a platform for the interaction of the demand of the funds (represented by the business firms) and the supply of funds (represented by the households), it is done with demand and supply forces. Thus, they help in determining the price of the asset being traded.
(iii) To ensure fair and safe market: The stock exchange is a legal and well-regulated market. It trades within the defined and existing legal framework. Therefore, it ensures safety and fairness in transactions.