parts into which the ownership of a company is divided) and
bonds (bond – an official document promising that a go-
vernment or company will pay back money that it has bor-
rowed, often with interest). In developed capitalist countries,
the stock exchange has important functions: as a ready market
for securities, it ensures their liquidity (the state of being
readily convertible into cash) and thus encourages people to
channel savings into business; and, as a pricing mechanism, it
determines prices that reflect the actual value of a company’s
stock (the capital of a company). Trading is done in various
ways: it may occur on a continuous auction basis or it may
involve brokers buying and selling shares in a company for
other people. Membership requirements of the exchanges of
different countries vary mainly with respect to the number of
members and the rigour of the eligibility requirements.
Membership requirements also differ in the degree to which
government participates in their management. The London
Stock Exchange, for example, functions as an independent
institution, free from government legislation. In the United
States, stock exchanges are subject to specific legislative
regulation. In Europe, it is quite common for the members of
the exchanges to be appointed by a government official and to
have semi governmental status.
