Question

What do stock markets allow for in general? Why do we need them to conduct international finance?

Answer 1

Stock markets are generally providing platform for interaction of various kinds of buyers and sellers in order to exchange their securities at the fair value and realise the value of the security.

Stock markets are generally providing a high level of transparency while transacting securities because they are monitored by regulators and the regulators are always keeping an eye on insider trading and other manipulative practices.

Stock markets are also offering with derivative segments which are attracting a large number of investors to take positions in the securities for the future periods and it will be helpful in speculation of the prices and maintenance of a higher degree of fair price mechanism through adequate demand and supply.

Stock markets are generally representative of performance of an economy and they are offering companies with a perspective of investors and the general public about their stock so they are also providing the indication of movement of the economy and movement of major companies in the economy and they are also offering with a better platform for exchange of sentiments between various market participants and they are offering a highest degree of liquidity.

2. We will need stock market in order to conduct International finance because stock markets have no Global barriers and international market participants can participate in different Global stock markets and the major benefit of the stock market is that international financing involves decision like exporting and importing and having subsidiaries in other markets which will be exposing these companies to transaction risk along with translation risk and economic risk and all these risks can be hedged through taking positions in to the derivative market of the stock market which is providing these companies in order to hedge their foreign exchange risk by taking positions into the future contracts and option contracts so they can help these international financing players in order to to minimise the risk associated with the fluctuations of the foreign exchange