What is purpose of stock market Exchange

Some of the Important Functions of Stock Exchange/Secondary Market are listed below:

1. Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country.

Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom
or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the
economic conditions of a country.

2. Pricing of Securities:
The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth
oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors,
government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and
government can impose taxes on value of securities.

3. Safety of Transactions:
In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list
only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and
regulations. This ensures safety of dealing through stock exchange.

4. Contributes to Economic Growth:

In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to
invest in most productive investment proposal and this leads to capital formation and economic growth.

5. Spreading of Equity Cult:

Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by
educating public about investment.

6. Providing Scope for Speculation:

To ensure liquidity and demand of supply of securities the stock exchange permits healthy speculation of securities.

7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of securities. The presence of stock exchange
market gives assurance to investors that their investment can be converted into cash whenever they want. The investors can invest in

long term investment projects without any hesitation, as because of stock exchange they can convert long term investment into short
term and medium term.

8. Better Allocation of Capital:

The shares of profit making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh
capital from stock market. The general public hesitates to invest in securities of loss making companies. So stock exchange facilitates
allocation of investors fund to profitable channels.

9. Promotes the Habits of Savings and Investment:

The stock market offers attractive opportunities of investment in various securities. These attractive opportunities encourage people
to save more and invest in securities of corporate sector rather than investing in unproductive assets such as gold, silver, etc.
a).What are the three major functions of the financial manager?How are they related?
Introduction
Financial Management is the efficient and effective planning and controlling of financial resources so as to maximize profitability and
ensuring liquidity for an individual (called personal finance) , government (called public finance) and for profit and non-profit
organization/firm (called corporate or managerial finance).Generally, it involves balancing risks and profitability.
The decision function of financial management can be divided into the following three major areas:
1):Investment Decision:
The most important decision.It begins with the firm determining the total amount of assets needed to be held by the firm.There are
two types of investment decision:
a):Capital Investment Decision:
Involves large sums of money.The impact is critical.Example acquire a new machine or to set up a new plant.
b):Working Capital Investment Decision:
A more routine or schedule form of decision.Examples are determination of the amount of inventories , cash and account
receivables to hold within a certain period.
2):Financing Decision:
The second major decision . After deciding on what assets to buy or what securities to invest in , the financial manager would have
to decide on how to finance these assets.
Sources of finance -- 2 sources ; Borrowings and / or Capital.
3):Assets Management Decision:
The third and the last decision. Once the assets have been acquired and appropriate financing provided, these assets must be
managed efficiently . By managing currents assets effectively and efficiently, the company can increase its returns and minimizes its
risk of illiquidity.
Conclusion:
Financial Management has become very complex over the last few decades. The area of financial has emerged into a unique area
separate from either economics or accounting. It has since developed into a very decision oriented field where internal decisions are
made in context of the external financial environment with a goal of maximized shareholder's wealth.
it the firm adopts ad hedging approach to financing how would it finance its current assets

Current Assets Financing Hedging Approach

Under this approach each asset would be offset with a financing instrument of the same maturity. Short
term seasonal investment requirements should be financed through short term loans and permanent current
asset and all fixed assets should be financed through long term loan and equity.

This shows that financing will be employed even when it is not needed. With a hedging approach to
financing, the borrowing and payment schedule for short term financing would be arranged to correspond
to the expected swings in current assets less spontaneous financing.
The rational behind hedging policy that if long term loans are used to finance the short term or temporary
current assets then the firm will be paying interest when the funds are not actually needed. It is clear from
the graphical view of the hedging policy that loans will only be employed during the seasonal need period.
Hedging approach to financing suggests that apart from current installments on long term debt, a firm
should not employ current borrowings during seasonal troughs for asset needs as per the above figure. As
the seasonal need asset arises it will borrow on short term basis. This loan will be used to pay off the
borrowing with the cash released as the recently financed temporary assets were eventually reduced. For
example, a seasonal increase in inventory for Eid selling will be financed with a shot term loan. As the
inventory was reduced through sales, debtors will be built up. The cash needed to repay the loan would
come from the collection from debtors. In this way financing will only be employed when needed.
Thus loan to support seasonal need would generate necessary fund to repayment in normal course of
operation. This is known as self-liquidating principle

How efficient inventory management affects the liquidity

and profitability of the firm.?
An efficient inventory mgt means you hold just enough inventory in your warehouse to ensure you can
meet sales, but not so little that you run into "stock-outs" where you lose sales (and hence profitability)
cos you've no inventory left to sell. You can also lose customer goodwill, and they may never come back.
On the other hand, holding too much inventory ties down your cash (drains your liquidity) which you can
do something else with. Having a good and accurate sales forecast is part of efficient inventory mgt.