CMA Intermediate · Financial Management and Business Data Analytics · Capital Market
In India's secondary market, which of the following correctly describes the main function of a stock exchange such as the NSE or BSE?
A stock exchange is a regulated platform for trading existing listed securities among investors. It provides liquidity and price discovery. Fresh issuance of capital belongs to the primary market, not the secondary market, so exchanges do not issue new shares for companies.
- AIt provides a regulated platform where existing listed securities are bought and sold among investors, giving liquidityCorrect
- BIt issues fresh shares directly to the public on behalf of companies to raise capital
- CIt fixes the face value and issue price of every company's shares
- DIt lends money to investors for buying listed securities
Explanation
The secondary market deals in already-issued securities. Exchanges give investors a regulated venue to trade them, which creates liquidity and price discovery. Raising fresh capital is the function of the primary market, so the option about issuing fresh shares is wrong.
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