What Is the Economic Purpose of the Stock Exchange?


Quick Answer

Stock exchanges serve the economic purposes of raising capital for companies and helping investors make money speculatively, explains Zacks. Additionally, any stock exchange can act as a kind of barometer of a nation's financial health. The dips and rises of the stock market are useful tools for economic analysts and policy makers.

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Full Answer

Financial markets and stock exchanges provide more economic benefits if they feature fairness and accountability, according to Zacks. Each exchange deserves the oversight of a formal governance structure that enforces norms, laws and ethics.

Explained another way, stock exchanges are markets that bring together borrowers and providers of capital, notes Borse Frankfurt. In this case, companies and state actors are the borrowers, and individual investors provide capital. Without the intermediary of the stock exchange, these two sides would have to negotiate directly, leading to out-of-control research and fact-checking costs.

Stock exchanges don’t list companies unless the companies meet strict eligibility standards, reports the London Stock Exchange. These standards encompass showing a clear business strategy, good organization and sensible management procedures. With their standards and oversight, stock exchanges enforce greater corporate transparency for all investors, explains Borse Frankfurt. Exchanges also ensure that within every category of security, all securities have identical structures and are fully interchangeable.

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