What Role Do Stock Exchanges Play In National Economies?Stock exchanges perform an important role in a national economy. They encourage investment by providing places for buyers and sellers to trade securities. This investment, in turn, enables corporations to obtain funds to expand their businesses. Corporations issue new securities in what is known as the primary market, usually with the help of investment bankers. This investment bank purchases the initial issue of the new securities from the corporation at a negotiated price and then makes the securities available for its clients and other investors. This is called an initial public offering (IPO). In this primary market, corporations receive the proceeds of stock sales. After this initial offering, the securities are bought and sold in the secondary market. The corporation is not usually involved in the trading of its stock in the secondary market. Therefore, stock exchanges will essentially function as a secondary market. By providing investors the opportunity to trade financial instruments, the stock exchanges support the performance of the primary markets. This arrangement makes it easier for a corporation to raise the funds that they need to build and expand their businesses. Although corporations do not directly benefit from secondary market transactions, the managers of a corporation closely monitor the price of the corporation’s stock in secondary markets. Reasons for this concern involves the cost of raising new funds for further business expansion, the perceived 'strength' of a company (and whether it is vulnerable to a takeover) and of course, their options and bonus packages! Would you like to learn more about trading? You would? Great! Then please click here for an excellent
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