A city having
a stock exchange represents financial maturity and economic primacy. The stock exchange is the central market platform to
trade market stocks and other securities. It creates an aggregation of stock brokers, sellers, buyers and all market components
to easily react to changes in supply or demand of specific stocks or securities. However, people can also trade off the stock
exchange as they will be considered over-the-counter deals.
The stock
exchange is a symbol of high liquidity and capital mobility in an economy. A stock exchange is influential in raising capital
for business who finds public investors as their resource for capital. Consequently, stock exchanges facilitate the move of
idle investments or assets into capital gain for a public company. The increases capital mobility allows company to tap into
a deep capital wealth that is easily extracted from willing investors.
The stock
exchange could also be used as a medium for mergers and acquisitions. This enhances increasing capital transformation not
only between the investors and companies but also between corporations. A stock exchange is also seen as an opportunity for
investors to gain profitable return to their investments albeit in a relatively risky setting. Stock exchanges are designed
to negate the cost of entry of small investors allowing these investors to share the pie just as large investors in a stock
exchange (Wikipedia 2007 [online]).
The stock
exchange is also the vehicle for acquiring capital funds for government projects, in effect incurring a government debt through
securities and bonds. These low risk, and low interest contracts allows the investors to finance a government project while
ensuring payment since government loans are insured by it citizens. The stock exchange is also playing an increasing role
as a medium for the dialogue between the public and the corporation which outs corporate governance in higher pedestal than
ever before. With the stock exchange corporate governance has evolved into public trust. Lastly, a stock exchange serves as
crucial barometers for the national economy.
The stock
exchange’s increasing role in the investment decisions of households, either directly or mutual funds, has signaled
flattening barriers of entry. Thus the move from government insured savings accounts to riskier stock exchange is the prevailing
trend in developed economies.
Such barometers
of economic health can be illustrated during the stock market crash of 1929 which led to the great depression. This crash
followed a bullish and speculative American household during the economic bubble in the 20’s. While the stock exchange
crash is not the main reason for the great depression, many scholars believe that the stock market crash was one vital initiator
of the depression (Wikipedia 2007 [online]). In 1997, The East Asian financial crisis starting with Thailand
spread quickly to neighboring countries and was clearly relevant in the contraction of stock prices and currencies across
the region.
The stock
market has integrated into a national economy that it can cause the mass movement of capital that can lead to fast growth
and quick crashes. Thus, being in the center of such financial agglomeration in a global economy is the cause of its increasing
relevance to the individual household.
References
Wikipedia.
(2007). Stock Exchange. Available: http://en.wikipedia.org/wiki/Modigliani-Miller_theorem. Last accessed 18 October 2007.
Wikipedia.
(2007). Asian Financial Crisis. Available: http://en.wikipedia.org/wiki/Asian_financial_crisis. Last accessed 18 October 2007.
Wikipedia.
(2007). Wall Street Crash of 1929. Available: http://en.wikipedia.org/wiki/ Wall_Street_Crash_1929. Last accessed 18 October 2007.
