Ria ran a small online bakery business. Her business was doing very well. She saved a good amount of money every month and now wanted to invest it wisely. She was in a dilemma to keep her savings in a bank account or to invest it in the stock market. Her friend Aabha, who had done a certification course from National Stock Exchange, encouraged her to invest in the stock market. She explained to Ria that if she invests in the stock market, she could disinvest and reinvest whenever she wanted, which would provide her good liquidity. Aabha also told her that the membership of stock exchange is well regulated and all trading takes place within the legal framework. As a result, investors get a fair and safe deal. Ria was still apprehensive as she had heard that there is lot of speculation in the stock market. She wanted to be cautious. Aabha clarified that speculation does exist, but it happens in a restricted and controlled way. She also told Ria that the stock exchange is keen to promote wider share ownership and does so by educating public about investments etc. As a result, young people have started investing in the stock market. After all this discussion, Ria felt confident and decided to invest a part of her savings in the stock market. Quoting lines, identify and explain the four functions of stock exchange highlighted in the above case.

Four functions of stock exchange in the above case are as follows: 1. “She explained to Ria that if she invests in the stock market, she could disinvest and reinvest whenever she wanted, which would provide her good liquidity.” Providing liquidity and marketability to existing securities: The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold which provide liquidity and marketability. 2. “Aabha also told her that the membership of stock exchange is well regulated and all trading takes place within the legal framework. As a result, investors get a fair and safe deal.” Safety of transactions The membership of a stock exchange is well- regulated and its dealings are well defined according to the existing legal framework, which ensures that the investing public gets a safe and fair deal on the market. 3. “Aabha clarified that speculation does exist, but it happens in a restricted and controlled way” Providing scope for speculation The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner. 4. “She also told Ria that the stock exchange is keen to promote wider share ownership and does so by educating the public about investments etc. As a result, young people have started investing in the stock market” Spreading of equity cult The stock exchange can play a vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.