Raising Capital for Businesses

Stock exchange or bourse is a mutual organizationWhen people draw their savings and invest in
which provides facilities for stock brokers andshares, it leads to a more balanced allotment of
traders, in trading company stocks and otherresources because funds, which could have been
securities, and for the issue of redemption ofconsumed, or kept in idle deposits with banks, are
securities and other financial tools and capitalmobilized to promote business activity that
events like the payment of income and dividends.benefits several economic sectors like agriculture,
The securities traded on a stock exchange include:commerce and industry, resulting in a stronger
shares issued by companies, unit trusts and othereconomic growth.
pooled investment products and bonds. To beCreating investment opportunities for small
able to trade a security on a certain stockinvestors:
exchange, it has to be listed there. Usually there isThe Stock Exchange provides opportunity for
a central location at least for recordkeeping, butsmall investors like the big investors to own
trade is less linked to such a physical place.shares of the same or different companies.
Electronic networks run modern markets are,Government capital-raising for development
providing them great speed and cost ofprojects:
transactions. Stock exchange is often called theGovernments at various levels may decide to
most important element of a stock market. Theborrow money for financing infrastructure
Demand and Supply in the stock markets isprojects like sewage and water treatment works
attracted by number of factors that affect theor housing estates by selling another category of
price of stocks.securities known as bonds. These bonds are
History of stock exchanges:raised through the Stock Exchange where public
In 12th century France, the courratiers de changebuy them, thus loaning money to the
were concerned with managing the debts ofgovernment. The issuance of such municipal bonds
agricultural communities on behalf of the bankscan prevent the need to directly tax the citizens
and these men also traded in debts. These menin order to finance development, although by
were the first brokers.securing such bonds with the full faith and credit
In the middle of the 13th century, Venetianof the government instead of with collateral, the
bankers traded in government securities. In 1351,result is that the government must tax the
the Venetian Government outlawed spreadingcitizens or otherwise raise additional funds to
rumors about lowering the price of governmentmake any regular coupon payments and refund
funds. Because of this rumor people in Pisa,the principal when the bonds mature.
Verona, Genoa and Florence also started tradingListing requirements:
in government securities which was possibleListing requirements are the set of conditions
because there were independent city states ruledforced by any given stock exchange upon
by a council of powerful citizens during the 14thcompanies that want to be listed on that
century.exchange.
Raising capital for businesses:Requirements by stock exchange:
The Stock Exchange helps current andFor companies to have their stock and shares
newly-formed companies raise capital for buildinglisted at the stock exchange have to meet
and expanding their business through selling sharescertain requirements of the exchange. But
to the investing public.requirements vary in different exchanges.
Mobilizing savings for investment: