Purposes of stock exchange

- Raising capital: Stock exchanges allow companies to raise capital by issuing shares through an initial
public offering (IPO)
- Corporate governance: Companies listed on a stock exchange must adhere to certain rules and
regulations, ensuring transparency and accountability
- Economic efficiency: providing a platform for investment, thereby utilizing capital that would
otherwise be untouched
- Transactional safety: ensuring transactional safety as the securities traded are listed after verifying
the company’s position
- Liquidity: Stock exchanges provide a platform for the sale and purchase of securities, ensuring that
investments can be readily converted into cash
- Price determination: help in the valuation of securities based on supply and demand

Equities, commodities, and bonds

- Equities: shares or stocks of a company that give the buyers a partial ownership and a claim on the
company’s profits. They are issued and traded in the equity market or the stock market, where
companies raise capital and investors seek gains.
- Commodities: physical goods that are used in commerce and trade, such as agricultural products,
natural resources, and metals. They can be interchangeable with other goods of the same type and
are often used as inputs in the production of other goods or services
- Bonds: Bonds are debt securities that entitle the holder to receive interest payments. They are issued
by corporations or governments to fund their operations. Bonds are traded in the bond market, which
is mainly over the counter rather than in a centralized location

Types of shares:

- Common shares: enable voting rights and possible returns through price appreciation and dividends
- Preferred shares: offer price appreciation but can be redeemed at an attractive price and offer regular
dividends
- Growth shares: belong to companies that are expected to grow at an above- average rate compared to
other market stocks
- Income shares (Yield shares): provide regular income through dividends that are higher than the
market average

Primary and secondary market

- Primary: This is where new securities are created. Companies or governments issue new stocks or
bonds to the public for the first time in this market, such as during an Initial Public Offering (IPO).
The prices of these securities are fixed and investors buy them directly from the issuer
- Secondary: This is where investors trade the securities among themselves after they have been issued
in the primary market. The prices in this market fluctuate based on supply and demand. It’s
essentially what we commonly refer to as the “stock market”, including major exchanges like the
New York Stock Exchange, NASDAQ, etc
 Auction exchanges

- Also known as auction markets

- Places where buyers and sellers put in competitive bids and offers simultaneously. Which means that
the current stock price is the highest price a buyer is willing to pay and the lowest price a seller is
willing to accept. So, when a match between a buyer’s price and a seller’s asking price is found, the
trade proceeds at that price will not be executed

Requirements to go to stock market (public)

- Review and Restate Financials: The company’s financial statements for the preceding five years are
reviewed and, if necessary, restated to comply with Generally Accepted Accounting Principles
(GAAP)
- Letter of Intent With Investment Bank: The company selects an investment bank and issues a letter
of intent to formalize the relationship
- Predictable and Consistent Revenue: The company should have predictable and consistent revenue
- Extra Cash to Fund the IPO Process: There should be extra cash available to fund the IPO process
- Growth Potential: There should still be plenty of growth potential in the business sector
- Top Player in the Industry: The company should be one of the top players in its industry
- Audited Financials: Audited financials are a requirement for public companies
- Strong management team and business processes: there should be a strong management team and
business processes in place

Pros and cons of going to stock market (public)

- Advantages:
 Raising Capital: Companies can raise substantial amounts of capital through an IPO and
subsequent funding rounds.
 Higher Share Valuation: Shares that trade on a public stock exchange have more liquidity and
higher valuation.
 Funding for M&A Transactions: With a higher valuation, the company’s stock can be used to
complete corporate M&A transactions.
 Reducing Corporate Debt: Public companies may retire debt through the IPO or subsequent
share offerings to reduce interest costs and improve cash flow.
 Maintaining Corporate Identity and Becoming Better Known: Companies going through an IPO
are more recognizable and gain the attention of potential customers and new strategic partners.
 Attracting and Retaining Employees: Companies can attract certain types of employees with
stock grants and public stock option plans.
- Drawbacks:
 Loss of Ownership and Control: Going public often means that the original owners will lose
some control over the company- .
 Costs Associated with Going Public: The process of going public can be expensive, including
costs for financial reporting documents, audit fees, investor relation departments, and accounting
oversight committees- .
 More Business and Financial Information Disclosure: Public companies are required to disclose
more information, which can be a disadvantage for some companies- .
  Responsibility to Shareholders: Once a company goes public, it has a responsibility to its
shareholders, which can sometimes lead to short- term decision- making.
 Time Commitment: The IPO process is lengthy and time- consuming, which may begin up to
two years before an initial public offering in the public market.

Roles in manufacturing

- Capital Raising: Manufacturing companies can raise capital by issuing shares on the stock exchange.
This capital can be used for expansion, research and development, or other business activities
- Consumer Spending: The performance of the stock market can influence consumer spending. When
the stock market is doing well, consumers may feel wealthier and spend more, which can increase
demand for manufactured goods
- Business Operations: The performance of a company’s shares on the stock market can affect its
operations. For example, a high share price can increase a company’s market capitalization, making
it easier to attract investment or acquire other companies
- Economic Indicators: The stock market is often seen as an indicator of economic health. A thriving
stock market may indicate a strong economy, which is generally beneficial for the manufacturing
sector
- Global Trade: Changes in the global trade structure, such as those caused by the COVID-19
pandemic, can affect specific sectors and supply chains, including manufacturing

Roles in real estate and services

- Consumer Confidence: The performance of the stock market can influence consumer confidence,
which in turn affects the real estate market. When the stock market is doing well, people feel
wealthier and are more likely to invest in real estate
- Interest Rates: The stock market can influence interest rates, which affect mortgage rates. Lower
interest rates can make borrowing cheaper, potentially stimulating the real estate market
- Investment Decisions: The volatility of the stock market can impact investment decisions in real
estate. For instance, during a stock market decline, real estate investors might reconsider their
strategies

Major stock markets:

1. New York Stock Exchange (NYSE), United States

2. National Association of Securities Dealers Automated Quotations (NASDAQ), United States
3. Shanghai Stock Exchange (SSE), China
4. European New Exchange Technology (EURONEXT), pan-Europe
5. Hong Kong Stock Exchange (HKEX), Hong Kong
6. Tokyo Stock Exchange (TSE), Japan
7. Shenzhen Stock Exchange (SZSE), China
8. London Stock Exchange (LSE), United Kingdom
9. Toronto Stock Exchange (TSX), Canada
10. Bombay Stock Exchange (BSE), India
 Major stock markets around the world work together
- Information Sharing: Stock markets share information about the prices of stocks, bonds, and other
securities. This information is used by investors worldwide to make investment decisions
- Interconnected Trading: Many large institutional investors, such as mutual funds and pension funds,
trade on multiple exchanges. This creates a degree of synchronization among different stock markets
- Global Impact of Major Markets: Major stock markets like the NYSE and NASDAQ have a
significant impact on global financial markets. Trends and events in these markets often influence
investor sentiment and trading behavior worldwide
- Foreign Listings: Many companies are listed on multiple exchanges, often in different countries.
This allows investors from one country to invest in foreign companies
- Global Indices: Global stock market indices, such as the MSCI World Index or the S&P Global 100,
track the performance of stocks from multiple exchanges around the world
- Market Hours Overlap: The trading hours of some stock exchanges overlap, allowing for continuous
trading throughout the day across different markets