A stock market is a financial market in which shares of stocks of are traded.
A. central banks
B. corporations
C. governments
D. retail banks
The correct answer and explanation is:
Correct Answer: B. Corporations
Explanation (300 words):
A stock market is a financial marketplace where shares of publicly traded companies (corporations) are bought and sold. The primary function of the stock market is to provide corporations with access to capital and investors with a slice of ownership in those companies. Shares represent units of ownership in a corporation, and when individuals or institutional investors buy stock, they become part owners of that corporation.
Corporations list their shares on a stock exchange through a process called an Initial Public Offering (IPO). This allows them to raise money for expansion, research, or paying off debt. Once the shares are publicly available, they can be traded freely on stock exchanges like the New York Stock Exchange (NYSE), London Stock Exchange (LSE), or Nairobi Securities Exchange (NSE).
It is important to clarify what does not get traded on the stock market:
- A. Central banks are national monetary authorities that manage currency, money supply, and interest rates. They do not issue or trade shares on stock exchanges.
- C. Governments raise funds primarily through bonds, not stock. Government securities are traded in bond markets, not stock markets.
- D. Retail banks are financial institutions that serve individual customers with services like savings accounts and loans. While some retail banks may be corporations whose stocks are traded, the banks themselves are not the entities whose shares are generically referred to in the definition of a stock market.
In summary, corporations are the entities whose shares are actively traded on stock markets. The buying and selling of these shares allow for capital formation and investment opportunities, making corporations central to the function of the stock market.