The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
When people draw their savings and invest in shares, it leads to more rational allocation of resources because funds, which could have been consumed or kept in idle deposits with banks, are mobilized and redirected to promote business activity resulting in stronger economic growth and higher productivity levels of firms.
By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of the stakeholders. Creating investment opportunities for small investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford.
Governments at various levels may decide to borrow money to finance infrastructure projects by selling bonds. The issuance of such bonds can obviate the need, in the short term, to directly tax citizens to finance development.
At the stock exchange, share prices rise and fall depending, largely, on market forces. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.