SS3 Commerce Lesson Note on Stock Exchange

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TOPIC: STOCK EXCHANGE

CONTENT:

1. Meaning, function and importance
2. Organizational set up and transactions at the stock exchange
3. Stock exchange securities (meaning and types)
4. Capital market: Meaning and method of raising funds

SUB-TOPIC 1: MEANING AND IMPORTANCE OF STOCK EXCHANGE

Stock exchange is a specialized market for buying and selling of securities. These securities are shares and stock which represent ownership interests in businesses, debentures and government bonds. This is a market where those who are interested in purchase of securities are brought into contact with the sellers.

IMPORTANCE OF STOCK EXCHANGE

1. It provides yardstick for measuring performance of companies
2. An avenue for raising capital: Companies and governments raise capital through stock exchange
3. Employment Opportunities: It provides employment opportunities for brokers, jobbers, clerks etc.
4. Provides information to investors: Foreign investors can obtain necessary information about the investment situation of a country
5. Facilitates transfer of investments
6. It is a market for investment: Stock exchange provides avenue for people to invest in any sector of the economy.
7. Leads to increase in the standard of living: Investment opportunities leads to more income which affects consumption thereby increasing the standard of living of the people of the country.

FUNCTIONS OF THE STOCK EXCHANGE

1. Fund mobilization
2. Sales of securities
3. Financial markets for investment
4. Provides avenue for government to raise fund
5. Provision of professional advice
6. Provision of rules and regulations
7. Encourages companies to be more efficient
8. Sale of securities etc

EVALUATION

1. State the importance of stock exchange to the economic growth of Nigeria.
2. Explain four functions of the stock exchange.
3. Explain 4 ways by which the central bank regulates the activities of commercial banks.

SUB-TOPIC 2: ORGANISATIONAL SET UP AND TRANSACTIONS AT THE STOCK EXCHANGE.

In stock exchange, buying and selling is facilitated by the brokers and jobbers. They are the only permitted members to conduct business in the stock exchange.

All transactions in the market must follow the laid down rules and regulations and only the companies that have received approval from the council of the exchange can be quoted.

Other members are authorized and unauthorized clerk.

1. Broker: This is an agent who is professionally engaged in the purchases and sales of securities in the stock exchange on behalf of a client in exchange for commission called brokerage. They act as a link between the members of the public who want to buy or sell securities and other members of the exchange.
2. Jobbers: A jobber is a member of the exchange who is the actual dealer in securities. He transacts business with the broker who is acting on behalf of the investors. Jobbers specialize in a particular type of business, buy and sell securities on their own for a profit called jobber’s return.
3. Unauthorized clerk: An employee of the broker who is not allowed to deal on the floor of the exchange. They are only given permission to assist members of the exchange.
4. Authorized clerk: A clerk of the broker who is entitled to buy and sell on behalf of their employers under the regulations of the exchange. They can enter the exchange and act on behalf of their employers.

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