What is the primary purpose of a stock exchange?

• A. To provide a regulated marketplace for buying and selling securities
• B. To issue new shares directly to investors
• C. To guarantee profits for all investors
• D. To set interest rates for financial institutions

Answer: (A)

Verified step by step guidance

1. Understand the concept of a stock exchange: A stock exchange is a regulated marketplace where securities such as stocks and bonds are bought and sold. It facilitates transactions between buyers and sellers.
2. Analyze the options provided in the question: Evaluate each option to determine which aligns with the primary purpose of a stock exchange.
3. Option 1: 'To provide a regulated marketplace for buying and selling securities' - This is the core function of a stock exchange, ensuring transparency, fairness, and efficiency in trading.
4. Option 2: 'To issue new shares directly to investors' - This is not the primary purpose of a stock exchange. Issuing new shares is typically done through an initial public offering (IPO), which is facilitated by investment banks, not directly by the stock exchange.
5. Option 3: 'To guarantee profits for all investors' and Option 4: 'To set interest rates for financial institutions' - These are incorrect as a stock exchange does not guarantee profits nor does it set interest rates. Its role is limited to providing a platform for trading securities.