FINANCIAL ENVIRONMENT COURSEWORK ASSIGNMENT

Financial Environment Coursework Assignment



Financial Environment Coursework Assignment

Stock Market

Introduction

The stock market is a tool used for pricing of stocks. Stock Markets play a very pivotal role in the current economic system. Based on the value of a stock exchange, one can assess the economic position of a company and map its position within the industry. The higher the stock index, the better is for the economy. The stock market is a source of money. Stock market is the meeting place of those who want to invest their in securities. The overall economic context, in addition to the stock market, acts as a famous trading center. In this paper, we will discuss the role and importance of Stock Markets in the Economy (Barsky, 1990, 265-281). We will also try to determine the effects of financial crisis on the stock market and its role.

Discussion

Stock Markets provide a great platform for buyers and sellers to meet at a place and involve in buying and selling of stocks.

Essentials of Developed Markets

Developed stock exchanges are essentially efficient markets and well regulated ensuring transparency and elimination of speculation. Stock markets can also be reffered as a supermarket for stocks. These markets works on efficient market hypothesis. The efficient markets are determined as the playing field where the stock prices reflect the true information completely (Jensen, 2004, 59-92). Therefore the efficient market implies that the stocks are ranked according to the level of the risk they exposed the investors. However, the usual practice is that the stock prices are adjusted in the stock market itself. The changes in the value of the stocks are independent of the other variables and adjust according to their value. Thus, it can be said that the changes in the price of the stocks are not affected by the value of the previous day.

Moreover, the size of the stocks is also unpredictable and random. It can be said that the stock market does not have any influence of its past activities on the next day operations. The stock markets are efficient enough to reflect the true market prices but it has taxes on the cost of making transactions in the practical world. The Eugene and Fama have described the efficient market as the market field where the price of stocks reflects the true value of the securities. They have described the stock markets exactly as defined by the financial analysts.

There have been defined three layers of efficiency for the security markets. These levels describe the stage of efficiencies that each layers imply. The levels of the stock market efficiency show the true value of the stocks (Howells 2008, 50-86). The stock market efficiency is classified as Weak, Medium and Strong.

The main roles of a well developed stock market are;

Raising Capital for Business

Mobilizing Savings for Investment

Facilitating company growth

Redistribution of Wealth

Corporate Governance

Creating investment opportunities for small investors

Government capital raising for development projects

Barometer for the Economy

Regulation of Companies

Employement Opprtunities

Examples of well developed stock exchanges include:

New York Stock Exchange

London Stock Exchange

Tokyo ...