How do stock exchanges affect the economy?

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How do stock exchanges affect the economy?

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nomi king 3 months 1 Answer 54 views 0

Answer ( 1 )

  1. Originally Answered: How do stock exchanges impact the economy?
    I would write this anwer with the perspective from people who don’t invest in shares and people who have considerably large amount of investment in shares.

    Stock Markets are important factor of the economy, It is actually a mirror image of how an Economy is performing over the years. If the Stock Exchange is performing considerably good, Economy is on a great path otherwise it is clearly growing at a slow pace growth rate.

    People who Invest massively in Shares:

    Anybody with a large investment in equity market will be affected by the stock market.
    It affects the investor confidence in country. For eg; Overseas investors have pumped in investments of US$ 9.96 billion in Indian Equity markets via FII’s in the first half of the last year, mainly on hopes of a stable and reform-oriented government at the Centre, If due to unstability and fringe elements, the Indian government fails to protect the Investor setiment, Investor may withdraw their massive investment, causing stock market to fall which in turn creates panic environment for both the government and the investors.
    This is the main reason you don’t see much investment in war torn and countries engaging in civil war such as Afghanistan, Somalia and most recently Ukraine.
    Firms who are expanding and wish to borrow often do so by issuing more shares because it apparently provides a low cost way of borrowing more money. But, with falling share prices it becomes much more difficult.

    People who don’t invest heavily in shares.

    I had a professor who jokingly said that financial management should be included in third grade curriculum as a result of rising financial illiteracy.

    you need not take it serious, It was his way of telling people to stay alert in making their financial decisions.

    Many believe that if you don’t invest in the stock market, a stock market crash doesn’t affect you. However, any ordinary citizen loses money and opportunities all based off the stock market.

    When the stock market begins to fluctuate, companies tend to cut the Employee Benefits by pulling back on their employees’ retirement, healthy care plans.
    It impacts student’s University education as when money gets tight, people stop saving and this includes their children’s education savings.
    Properties or real estate tends to get more expensive as interest rates rises. This creates a bone of contention as Income of of people doesn’t show any momentum and as a result the property bubble may burst causing property prices to fall intensively which may affect people who have massive investment in real estates.
    Unemployment , most companies keep their money mixed in equities, and hence a rapid drop may disolve their assets and so to make up for this, Companies would lay off employees to try to stay afloat.

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