(a) State four functions of a Stock Exchange.
(b) Explain the following types of securities traded on the Stock Exchange:
i. debentures
ii. bonds
iii. shares
iv. stock.
Explanation
(a) Functions of a Stock Exchange:
i. Provision of rules and regulations: It provides rules and regulations that will guide smooth operation on the floor of the stock exchange.
ii. Provision of professional advice: It provides professional advice/information to investors on sales and management of securities.
iii. Allowing forces of demand and supply: It allows forces of demand and supply to fix the prices of securities of quoted companies/evaluation of existing shares.
iv. Facilitation of the transfer of shares: It facilitates the transfer of shares from owners to investors. Investors who want to withdraw from one company to another can do so without hindrance. Investors can buy and sell old securities.
v. Providing an avenue for the government to raise funds: It provides an avenue for the government to raise funds to execute projects in their various states through the issue of bonds.
vi. Instilling discipline: It instills discipline in the operations of quoted companies.
v. Ensuring good reputation of quoted companies: It ensures that companies quoted have a good reputation. This will gear up companies to perform well or maintain a high standard.
vi. Allowing quoted companies to raise funds and capital: Quoted companies raise funds and capital by selling shares, bonds, stocks, and debentures in the stock exchange market.
(b) Types of securities traded on the Stock Exchange:
i. Debentures: This is an official document that is given by a company, showing it has borrowed money from a person and stating the interest payments that it will make to them. Or This is a document that acknowledges a loan generally under the company's seal, bearing a fixed rate of interest. Or It is a document that usually gives security for repayment of loans as well as the interest and can be described as a document setting out the terms Of a loan t0 a company, 1.e. certificate of indebtedness.
ii. Bonds: These are agreements by a government or a company to pay you interest on the money you have lent. Or These are securities issued by a government or its agency or private institutions as a means of raising funds. Bonds are usually due to being redeemed at some future dates, and they carry a fixed rate of interest.
iii. Shares: A share can be defined as an individual portion of the company's capital owned by shareholders. It is the interest that a shareholder has in a company. Or a share is a unit of capital measured by a sum of money. A share also represents the mechanism by which the shareholders of a company can have limited liability. Or lt is any of the units of equal value into which a company and sold to raise money.
iv. Stock: This can be defined as the bundle of shares or mass of capital that can be transferred in fractional amounts. It is always fully paid. Or This is the capital raised by a company or corporation through the issue and subscription of shares.