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Financial markets and the treasury function

4.2 Stock markets and corporate bond markets

The role of the stock market is to:

 facilitate trade in stocks such as:

– issued shares of public companies

– corporate bonds

– government bonds

– local authority loans

 allocate capital to industry (share prices of attractive companies rise making it
easier for them to raise cheap capital)

 determine a fair price for the assets traded

Speculative trading on the market can assist by:

 smoothing price fluctuations

 ensuring shares are readily marketable

Market-makers:

 maintain stocks of securities in a number of quoted companies

 continually quote prices for buying and for selling the securities (bid and offer
prices)

 generate income by the profits they make from the difference (or ‘spread’)
between the bid and offer prices

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