The Role of the Securities Market.
[dropcap]F[/dropcap]or rapid economic development both direct and indirect financing should be considered complementary. The efficient and effective operation of the securities market is required to meet at least two basic requirements.
The Role of the Securities Market
The first one is to support industrialization through savings mobilization, investment fund allocation, and maturity transformation.
The second one is to be safety and efficiency in discharging the above role.
In a developing country like Bangladesh, such conditions do not prevail due to the prevalence of informal credit markets.The recent development towards privatization seeks the need of efficient capital markets. It performs various functions in the process of economic development. The securities markets provide both savers and users with a broad spectrum of investment choices that can increase the level of both savings and investment.
Securities markets can attract the investors as it offers a higher return to the investment portfolio. This investment portfolio easily can draw more savers in the investment process that in turn involves institutions like brokerage houses, investment banking, money investing firms, etc.
Under the scheme of Foreign Direct Investment (FDI), securities markets attract external sources in the capital market. Entrepreneurs are supposed to be provided capital procuring other factors of production that would ensure full-employment and create more productive capacity in the economy. A securities market can achieve this type of objective.
Securities markets can augment the growth; development and stability of a country’s financial structure increase the allocation of savings, allocation of existing real wealth and ensure the distribution of income.
In the economic development of a country, the problem is mainly two-fold viz., increase or creation of domestic savings and transformation of more funds to an investment. Securities markets can ensure efficient allocation of savings to productive investment by the creation/development of money and capital market.The Role of the Securities Market in the context of Bangladesh plays a vital role.
In the economic sense, capital formation is the change in the stock of the capital goods represented by producers’ durable equipment and business inventories. In a modern capitalistic economy, capital formation would be impossible without a market or group of markets for the transfer of savings to those seeking funds for investment in economic goods and services.
In this connection, a variety of instruments representing money and claims to money are employed. Savers provide the funds and in return expect to receive dividends, interest, or rent and the investors offer the hope of income and price appreciation. In the financial sense, a securities market is the market for instruments representing longer-term funds. It consists of institutions and mechanisms whereby intermediate-term funds and long-term funds are pooled and made available to businesses, government, and individuals, and where outstanding instruments are transferred.
On the other hand, the money market focuses on debt instruments only with maturities ranging from one day to one year. It is engaged in purchasing and selling of new instruments rather than trading in outstanding claims. In financial terminology, the investment market includes the markets for funds both short and long term. Both long term and short term segment of the investment market include the primary sale and purchase of and secondary transactions in instruments. Business firms invest capital in amounts that are beyond their capacity to save in any reasonable period of time.
The securities market plays a crucial role in the proper functioning of the capitalistic economy. They serve to channel funds from savers to borrowers. Another important function that the securities market does is theallocationfunction by channelingfunds to those who can make the best use of them. The existence of the secondary market ensures the purchasers of the primary securities that they can quickly sell their securities. Since there are no guarantees in the financial market, sales may involve losses. Such a loss may be much preferred to having no cash at all if the securities cannot be sold readily.
The Role of the Securities Market
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FAQs
The primary function of the securities markets is to enable to flow of capital from those that have it to those that need it. Securities market help in transfer of resources from those with idle resources to others who have a productive need for them.
What is the structure of the securities market? ›
Primary markets, where new securities are issued and secondary markets where existing securities can be bought and sold. Secondary markets can further be split into organised exchanges, such stock exchanges and over-the-counter where individual parties come together and buy or sell securities directly.
What is one of the major functions of the securities markets ____________ group of answer choices? ›
One of the major functions of the securities markets is to: assist businesses in finding long-term funding to finance business expansion.
What are the functions of securities markets quizlet? ›
What are the functions of securities markets? Securities markets provide the mechanism for buying and selling securities for both corporations and governments. The securities markets provide liquidity to investors through the secondary market.
What are the essential roles of securities regulation? ›
By protecting information traders, securities regulations enhance efficiency and liquidity in financial markets. Furthermore, by protecting information traders, securities regulation represents the highest form of market integrity by ensuring accurate pricing and superior liquidity to all investors.
What is the role of securities market regulator? ›
SEBI plays a crucial role in the Indian financial system by regulating the securities market, ensuring transparency, and protecting investors' interests. It also regulates the functioning of stockbrokers, sub-brokers, portfolio managers, and other intermediaries in the securities market.
What are structured securities examples? ›
Structured product examples include market indices, bonds, stocks, etc. The expected returns from these structured products and the amount of capital at risk can be predetermined.
What are the 4 types of securities market? ›
There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities, which are a combination of debt and equity.
What is the market structure strategy? ›
Market structure is not a trading strategy or specific setup. It's more of a high-level concept that allows you to identify and understand overall market conditions. It can be used to help with trade entries or more importantly, set invalidation levels and know when you're wrong.
What are the three main functions of markets? ›
The main functions of markets are:
- to provide opportunities for the exchange of goods and for sales by producers in rural areas;
- to provide, at assembly markets, opportunities for the bulking-up and export of goods and produce to outside areas;
- to provide easy access to a wide range of produce for consumers;
The Securities and Exchange Commission (SEC) oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in an effort to promote fair dealing, the disclosure of important market information, and to prevent fraud.
What is the primary market deals with all type of securities? ›
The primary market is where securities are created, while the secondary market is where those securities are traded by investors. In the primary market, companies sell new stocks and bonds to the public for the first time, such as with an initial public offering (IPO).
What is the role of securities markets in economic development? ›
The functions of securities market
It is a marketplace for securities. While it offers an opportunity to investors to benefit from investing in securities issued by companies, governments, etc., it also offers liquidity or an exit route to existing investors of the same securities. It is a marketplace for securities.
What are the main functions of markets the main functions of markets include _______? ›
Markets are an important part of the economy. They allow a space where governments, businesses, and individuals can buy and sell their goods and services. But that's not all. They help determine the pricing of goods and services and inject much-needed liquidity into the economy.
What are the major functions of the securities and exchange Commission quizlet? ›
What is the SEC's main mission? To protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
What is the capital structure of securities? ›
Capital structure refers to a company's mix of capital—its debt and equity. Equity is a company's common and preferred stock plus retained earnings. Debt typically includes short-term borrowing, long-term debt, and a portion of the principal amount of operating leases and redeemable preferred stock.
What is the structure of the financial market? ›
The structure of the financial market broadly divides into the Money Market and Capital Market. The money market caters to short-term fund requirements, while the capital market takes care of long-term funding needs. The financial market structure only includes the Stock Market and secondary markets.
What type of market structure is the stock market? ›
The best examples of pure competition market structures are stock, agricultural and craft markets.
What is an example of a security market? ›
They can be organised as exchanges, over-the-counter (OTC) markets, or electronic platforms. Some of the examples of securities markets are the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and Frankfurt Stock Exchange (FSE).
