This essay offers a broad description of the United States US and international stock markets, the interplay and globalization of these financial spheres, and ultimately the relationship between the US economy and the stock market.
To develop a better understanding of the complexities of the market, the article weaves into context events of the famous Stock Market Crash and the resulting regulatory safeguards in place today. The essay is easily understood by those new to the world of financial markets and provides a springboard for exploration into the complex and sometimes risky world of financial markets. For the reader, a 30, foot view of the financial investment field for corporations, investors, brokers, and managers — the stock market - follows.
Scores of businesses start small, as one or two person enterprises; with continued growth the successful develop into a partnership, and in due course a full-fledged corporation is born. Corporations need short-term money to maintain accessible inventory and capital; they usually accomplish this by borrowing directly from banks. When a corporation needs longer-term financing, funds can be obtained by selling off portions of the business in the form of common or preferred stocks.
These same stocks attract investors who often trust their monies to large securities firms or dealers who specialize in investing. The expectation is that the professionals working for the firm will handle the investor's money well, with many years of expertise guiding their decisions.
The Stock Market is the trading field for exchanges worldwide. The stock market takes two forms: A virtual electronic marketplace and the other a true, physical marketplace. The market, put simply, is the venue that facilitates the selling and trading of securities primarily bonds and common stock ; the employees are known as 'stockbrokers. The US market consists of stock exchanges, the vehicles by which securities are bought and sold.
The short list of what comprises "the stock market" includes stock exchanges, commodities, bonds and other exchanges, a few of which are listed below:. Public trading of the over 2, securities on the NYSE is driven by supply and demand; an economic challenge of changing equilibrium driven by sellers and purchasers in an auction-like environment. Globalizing exchange transactions saves costs in this industry since the largest single expense is building the technology to operate trading platforms Werdigier, The catastrophic stock market crash of ended the prosperity of the era and brought upon the United States a disaster never to be forgotten.
Reasons for the crash remain uncertain, though the most solid theory speculates that investors rapidly selling their stocks for profit led to unrest and a groundswell of anxious people following suit. The businesses that relied on investors' money began to fail; vast numbers of people lost their jobs as a result.
Without jobs, people withdrew money from their checking and savings accounts out of fear for their very survival.
The banks simply could not meet the demands for monies, having invested much of the depositors' cash into the spiraling stock market, so many of the financial institutions failed right alongside other weakening companies. The entire economy began a treacherous downward spiral, ultimately leading to the Great Depression. Speculation that the Stock Market Crash of was caused by a lack of formal rules and regulations led to Franklin Delano Roosevelt's urging of Congress to pass the Securities Act of and the Securities Exchange Act of The management of stock exchange is entrusted to its governing body whose composition differs from one another.
The body functions as per the constitutional provisions and by-laws of stock exchange. The stock market or stock exchanges are usually discharging some important functions for the orderly and systematic growth of capital market. Stock markets establish nexus between savings and investments of the community. The community savings are rightly mobilised and channelized by the stock exchanges of the country for its investment into those sectors and companies which the community at large feels secure especially on the basis of its past performance, good return, capital appreciation etc.
The preference of investors for a particular industry or for a particular individual unit is reflected in the share price, which again determine the mode of investment.
Stack exchanges render valuable services for the preliminary distribution of new issues of capital and also arrange offers for sale of existing securities, in a most systematic and orderly fashion.
Members of stock exchange also help in floatation of new issues as brokers and underwriters throughout the country. Another important function of stock markets or exchanges is to provide a market place for the purchase and sale of securities to the original subscriber and a huge number of buyers for attaining its free transferability.
As the purchase and sale of securities are centralised in that market so the purchaser usually get a ready seller and the seller usually get a ready purchaser at a competitive price for making necessary transaction on their securities. Establishing a process of continuous price formation is another important function of stock exchanges or markets. As a large number of buyers and sellers are operating in such market, the collective judgement of such a large number of people brings changes in the level of prices of securities in small graduations in an unending process.
Accordingly, stock markets can act as a barometer of the state of health of the economy of a nation through its continuous price formation which helps an investor to take a right decision at appropriate time.
The stock markets establish a system of market makers at par with all leading stock exchanges of the world. In this system, the market makers usually take the responsibility of making of market of specific shares, i. This system also protects the investors from its exploitation by the stock brokers and ensure transaction of shares at best possible market rates and also ensure prompt execution of transaction and liquidity.
Thus this system offers protection to investors and also liquidity to all shares. Another important function of stock exchanges is to unify all stock exchanges on a national basis for introducing a uniform system of one-week settlement.
This system reduces the risk of price movements in share and also checks the tendency towards over-speculation and over concentration of trading activity in a few shares.
The stock markets usually introduce a well designated management information system MIS so as to feed the stock exchanges with sufficient information relating to trading volume and prices, trading concentration in certain securities, speculation etc.
Such information are very much helpful for the authorities to restrict and regulate the stock market properly.
The stock markets usually provide a correct mechanism through which price of various securities offered by different business undertakings are determined through proper evaluation of its present future income yielding capacity.
It is mandatory for all stock exchange to frame rules, regulations and bye-laws for ensuring reasonable degree of security and safety to the investors to make all transactions fair and secure. Stock exchanges provides the services to the investors by collecting their savings and by channelizing these savings into investment in securities of various business firms and companies and thereby paves the path for capital formation and also for proper investment of capital.
After that the Ahmedabad Stock Exchange was started in in order to facilitate the dealings of shares of textile mills established there. Again, in , the Calcutta Stock Exchange was started to arrange a ready market for shares of jute mills and plantation industries. There was spurt in speculative activity in India during the Second World War and thereby the number of stock exchanges has increased from 7 in to 21 in Over and above these organised exchanges, some unorganised exchanges, known as Kerb markets, were also functioning in the country as per usages and conventions.
Among all these stock exchanges, Bombay Stock Exchange is the premier exchange in the country, which transacts nearly 70 per cent of total transactions made in all the stock exchanges of the country. Thus stock exchanges provide an organised market for transactions in shares and other securities. There are 22 stock exchanges in the country, out of which 20 SEs are regional ones with allocated areas.
Two other SEs set up in the post-reform era, viz. This has been followed by regional stock exchanges. As on 31st March , 9, companies were listed in stock exchanges.
The NSDL was set up in October under the Depository Act, with the objective of ensuring free transferability of securities with speed, accuracy and security. This Act has made the securities of public limited companies freely transferable and also provides for maintenance of ownership records in the book entry form. Thus the stock exchanges of India has been progressing at a satisfactory rate with the support of the Government and are also meeting the requirements of public limited companies in its security related affairs.
The nature of transaction in all stock exchanges is not similar as it is guided by procedures adopted and the settlement of transactions done in various stock exchanges. However, in an Indian stock exchange, any typical investment business transaction has to pass through the following four stages: The idea of speculation in a stock exchange indicates purchase and sale of a security or share at a particular point of time with the sole object of making windfall profit by its sale or purchase at another point of lime.
In India, stock exchanges are very much subjected to speculation. In stock market, two types of transactions are held normally, viz. By investment transaction, we mean purchase or sale of securities which are done with the long term prospect relating to their yield and price.
But in a speculative transaction actual buying or selling of securities are not done normally and thereby the delivery of securities or the payment made as per ruling price are also very rare; rather only the difference in prices between buying and selling are paid. Now-a-days, there are predominance of speculative transactions over the investment transactions in the stock exchanges in India as the former requires smaller amount of money and the latter requires larger volume of money for making full payment against purchase of securities.
In India, there are a number of stock exchanges which are scattered throughout the country. But there is lack of proper integration among these stock exchanges. Although Bombay Stock Exchange BSE dominates over all the stock exchanges as it conducts more than 70 per cent of the total transactions of all exchanges but due to lack of proper integration between the stock exchanges, the prices of shares and stocks vary considerably between different markets at the same point of time.
Indian stock exchanges are suffering from weak and deficient management and also certain flaws in their structure. The stock exchange is usually managed by the member-brokers for their own benefits.
The Governing Body of a stock exchange is not having any concern or willingness for introducing any reforms in trading. The Executive Director ED of a stock exchange has also failed to perform its regulatory functions freely as it is very much responsible to Governing Body. Specified shares are getting certain special facilities such as settlement period, carry forward and clearing which promotes speculation. This type of categorization favours granting of artificial encouragement to a few large companies which has economic justification in it.
Indian stock exchanges SEs are levying margins on all speculative transactions which are highly discriminatory in character, as the margins are varying extensively from share to share and also from day to day, ranging between 0 to 40 per cent. Again, the system of imposition of margins has also failed to control excessive speculation in stock exchanges.
Stock Fraud: When brokers or people in the stock market influence or make investors buy stock based on false information which is a major violation of the laws put in place in order to protect us from these scandals and in usual cases, it results into a loss for investors.
The Stock Market is an area of which I have very little knowledge of, and therefore decided to research as my topic for this paper. Though it plays a very important role in nearly every section of our lives, I can't say I know much more than nothing about it. I found that the stock market is an /5(5).
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