A stock market also known as an equity market is a public entity where shares are issued and traded either through exchanges or over-the-counter markets. It provides companies with a platform to raise capital and investors with a percentage of ownership in the company. The New York Stock Exchange is the largest stock exchange in the USA, in terms of market capitalization.
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In Asia, few of the prominent examples include the Tokyo Stock Exchange, the Bombay Stock Exchange etc. The stock market allows shares of businesses to be publicly traded, or raise additional financial capital for expansion (through additional stock offerings). The liquidity that an exchange provides to the investors gives them the ability to easily buy and sell securities. Some companies actively increase liquidity by trading in their own shares. Share prices and stock market movements are an important part of the dynamics of economic activity, and is often considered a good indicator of economic health of a nation. An economy where the stock market is on the rise is considered to be a healthy economy. In fact, the stock market is often considered the primary indicator of a country’s economic strength, development and progress. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the income levels of households and their spending and consumption patterns. Therefore, central banks tend to keep a watchful eye on the smooth operation and stability of the financial system.
Intrinsic or fundamental value is the perceived value of an investment’s future cash flows, expected growth, and risk. A wise investor would want to purchase shares at a rate which is lower than the intrinsic value, which may be quite different from the market price (which is determined by the forces of demand and supply) of the share. Every buyer and seller has his/her own rationale behind purchasing or selling an asset, and they may employ different methods to estimate the value of the asset before making a decision to trade in it.
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